On August 25th Oregon Governor John Kitzhaber announced three new appointments to the Board of Directors for SAIF Corporation, the state owned workers' compensation insurance company. This action follows a tumultuous summer for the agency that saw popular CEO John Plotkin terminated after just three short months on the job. Now, information has come forth that tells us these may be no ordinary appointments. The question is, what do they ultimately mean?
Two of the appointees, Jeff Stone and Jennifer Ulum, both actively supported Oregon's Ballot Measure 38, an attempt in 2004 to abolish SAIF and turn its book of business over to the private market. Had the measure passed, SAIF’s assets would have been sold and the revenues from the sale would have been used to fund other state services. The measure failed almost two to one in the general election, with 670,935 votes in favor, and 1,037,722 votes against. A group calling itself Oregonians for Accountability spearheaded the effort to get Measure 38 on the November 2004 ballot.
It was a highly contentious affair, coming at a time of scandal and controversy at SAIF. Stone apparently supported the initiative, and is quoted in at least one source as saying SAIF “wanted to become Oregon’s government-run monopoly”. He compared it to their next door neighbor Washington State, saying at the time, “Washington’s government-run monopoly has wreaked economic havoc in that state. There’s no reason to believe a SAIF monopoly in Oregon would be any different.”
Ulum, for her part, says she “learned a lot,” from her experience supporting Measure 38. “It was not a long engagement, but it was educational and enlightening.”
So, what does this mean for SAIF?
The SAIF employee comments on my blog indicate they have tremendous fear of a Measure 38 repeat, and that they believe the Governor may be bringing these people in to shut SAIF down for good. Others consider it a personal insult, as they harbor great resentment from the battle fought 10 years ago. I have a contrary view, and while it will not be popular with the SAIF rank and file, I believe these selections may actually bode well for eventual positive change in Oregon.
After all, they either want change, or they don't.
There is an undercurrent of reform with state funds operating around the nation. This was touched upon this year by Chesapeake Employers CEO Tom Phelan at the recent AASCIF Conference in Maryland. Phelan acknowledged the changing landscape of state funds, and how they had to learn to adapt even as they started “running into each other” from time to time. What Phelan was discussing was the trend for state funds, quasi-governmental agencies established to serve their respective states, going private and potentially competitive outside their traditional jurisdictional homes.
Probably the two best examples of successfully competitive funds are MEMIC, out of Maine, and Brickstreet, based in West Virginia. MEMIC is now licensed to write business in 46 states, and has opened offices in numerous states. Brickstreet has only launched into the competitive landscape within the last few years, but is actively involved in more than a dozen states at this time.
Other funds have laid the groundwork to “go competitive” should they choose to do so. Pinnacol Assurance, where John Plotkin served on the board and was Interim CEO before his ill fated move to SAIF, is one such company. The most recent to make moves in this area is Phelan’s company, Chesapeake Employers Insurance Company, formerly Maryland's IWIF, or Injured Workers' Insurance Fund. Maryland reforms enacted in 2012 separated the fund from the state and made it a “nonprofit, non-stock, private corporation effective October 1, 2013”.
I have to wonder, with at least two private market proponents on the board, could SAIF be looking at a similar trajectory? I could very well be wrong. If I am right, however, I will state unequivocally that this could mean good things for the long term health of SAIF and the rank and file employees that serve it so well.
First, the notion that these people are being appointed to dismantle SAIF just does not make sense. Ballot Measure 38 failed by a very strong margin, demonstrating that the voters in that state would not accept an internally driven attempt to accomplish what failed at the ballot box. I don't know much about Governor Kitzhaber, but he does not appear to be a person with the testicular fortitude needed to willingly embrace such a fight. Along those same lines, employees of SAIF must recognize that the battle they engaged in 10 years ago is based in business and politics; it was not a personal attack on individual integrity.
Supporters of Measure 38 pointed at the time to a series of scandals at the government agency, and portrayed it as both “out-of-control and lacking proper oversight”. While the scandals of yore were largely financial in nature and do not exist today, I would endeavor to point out that the Plotkin scandal does not show the agency in any more favorable light. People in that agency conducted a wholly improper termination of a man who threatened the status quo, and none of those individuals have ever been held accountable for the actions that tarnished a good man's reputation and exposed the agency to potential millions in liability. Does that sound like an agency that currently has proper oversight?
I would dare suggest that had John Plotkin been allowed to execute his vision that some of the changes on which I speculate would likely have come to pass. I point to a notation in the documentation provided in the aftermath of his termination, where at a meeting he apparently suggested that SAIF should no longer aim to just break even. The comment, according to the notes, drew an “audible gasp” in the room of executives; such a radically different notion it was from the agency's traditional dogma established over 100 years.
I don't know John Plotkin, and certainly would not presume to speak of his intent with such a comment, but my interpretation of that remark was that of a forward looking, expansive statement – one that could indeed see SAIF in a truly competitive model outside its well worn comfort zone.
Such a move would certainly require some changes within the agency. A competitive SAIF would need to be run by skilled executives, and a major overhaul of upper management would probably be in order. No longer could the agency serve as a repository for state executive “lifers” looking for a home. The handling of the entire Plotkin termination and aftermath makes that plainly apparent. Those changes must occur, as in its current state it could not attract qualified talent. Who in their right mind would want to subject themselves to Plotkin's fate?
SAIF employees will proudly tell you they have built a world class claims operation. They take pride in their work and what they do. A competitive SAIF reaching outside its traditional territory would not change that, and in fact could benefit from that expertise. Expanded business would mean more opportunity for advancement and, contrary to likely fears of some of these employees, becoming private and competitive would not damage the corporation's reputation if done properly. (Besides, could it be damaged any more than it currently has?)
This is not subjective hyperbole. What I am saying has been proven by companies like MEMIC. That company remains the dominant insurer in its home state of Maine, while aggressively pursuing growth in other regions. In the interest of full disclosure they are a long time customer of my company, as our products tend to be useful for those companies doing business in multiple jurisdictions (Brickstreet is also a customer), but I can assure you that both management and culture at that company are first rate. They are a very highly respected company, with similar employee dedication and loyalty as shown by those at SAIF. They have just escaped the political bubble that continues to dog their Oregon counterpart.
Ultimately, we don't know what these new board members will mean for SAIF, but we can hope that they will be a positive addition for change at that company. With a disgruntled workforce, ineffective leadership and a badly bruised reputation, it may be time for two free market people to help guide this company to start thinking outside the non-competitive box.
For a list of Bob’s other SAIF/Plotkin articles (as well as a couple old AASCIF articles that get picked up in the search), Click here.