State Compensation Insurance Fund will allow producers to start taking over its direct business on a Broker of Record letter starting January 1, 2011. State Fund will pay commissions between 10% and 12%, and has also increased the availability of merit rating on small accounts from 25% to 40%. But it will also charge 3% less to its direct customers.

State Fund expects to be “bombarded” with Broker of Record changes, brokers tell Workers’ Comp Executive. State Fund is sending out a letter to its brokers emphasizing a few items on the change coming January 1, 2011. According to an email from Linda Lucas, senior marketing representative at State Fund, a direct State Fund account with a current Broker of Service letter will require a new Broker of Record letter before the policy will be converted to a brokered policy. Broker of Service letters will no longer be accepted. In addition, brokers should know:

• If a Broker of Record letter is received between the inception date and 21 days prior to the policy’s Anniversary Rating Date (ARD), the broker will be eligible for commission upon policy renewal.
• If a Broker of Record letter is received for a direct State Fund policy within 20 calendar days from its Anniversary Rating Date (ARD), the policy will be converted to a brokered policy and will not be eligible for commission until the next renewal period.

Don Way, a broker with Thoits Insurance, says that even if direct accounts are charged 3% less, with the commissions being paid, it’s a still a win. He thinks the 3% differential is probably going to go away.

“It’s half a loaf. It’s another step in the relationship between independent brokers and State Fund,” Way says, adding that now State Fund will start dealing directly with brokers. “They’ll push all the paperwork toward us and make our jobs easier.”

Way anticipates that most direct accounts will start to move. The hardest accounts will be those minimum accounts of $1,500 and the association business such as the Builders Exchange. With less than two months before the change, brokers need to get their ducks in a row now.

“[T]hey need to get hold of all their clients and prepare Broker of Record letters for January 1, 2011 and get it signed. That’s a no-brainer,” Way says. “If they’ve got prospects, they should use it as a chance to say hi.”