CA: Cuts in workers' comp rates urged

San Diego Union -Tribune ^ | 6/2/05 | Dean Calbreath

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State Insurance Commissioner John Garamendi yesterday urged insurers to cut their workers' compensation rates by 18 percent July 1 to reflect the savings they have received from recent regulatory reforms.

An insurance industry spokeswoman responded that double-digit reductions are likely, although not necessarily as deep as those Garamendi recommends.

"Eighteen percent is not unreasonable," said Nicole Mahrt, public affairs director for the Western Region American Insurance Association. "It's higher than what some companies are able to do, but some companies are already planning cuts higher than that."

Twice a year – on Jan. 1 and July 1 – the state changes its "pure premium rate," which is essentially a target rate for workers' compensation insurance.

Since January 2003, Garamendi had already lowered the pure premium by 27.5 percent to reflect legislative reforms enacted in late 2003 and early 2004. With yesterday's call, Garamendi's recommendations would add up to a 36.5 percent cut in the rate.

So far, insurers have lowered their rates by an average of 17 percent.

Mahrt said insurers have lagged behind Garamendi's previous cuts because "he was going a little too far and counting the chickens before they were hatched. The insurance industry wanted to see real savings."

Garamendi's latest call for reduced rates comes amid a flurry of data suggesting that insurers are reaping large profits on workers' comp.

In 2004, for instance, insurers paid 45 cents in claims for every dollar they were paid in premiums – hinting at a large profit for an industry that makes most of its money on investments and not premiums.

"Profitability is really starting to show through on the insurers' financial statements," said Andy Barile, an insurance consultant in Rancho Santa Fe. "It's hard to continuously hide such good results."

Mahrt agreed that profits are rising. But she said last year's figures are misleading, because they include a large number of premiums that were paid before insurers started cutting their rates.

"We also have to be responsible and prepare for the future by setting aside reserves," she said.

In a possible sign of things to come, California's biggest workers' compensation insurer, the state-affiliated State Compensation Insurance Fund, said it will cut its rates an average of 14 percent on policies sold or renewed starting July 1. That would bring its cuts over the past two years to a total of 26.2 percent, well below Garamendi's target.

Insurance industry critics say that even Garamendi's proposed cut is not deep enough. The California Applicants Attorneys Association, composed of lawyers who represent injured employees in workers' comp claims, argue that insurance rates should drop by 27 percent July 1 to reflect the insurers' "obscenely high profits."

The profits have resulted in part from a number of regulatory changes passed over the past two years to cap the number of times that injured workers can visit doctors and chiropractors, establish specific standards of care for workers and restrict some forms of medical care.

Some lawmakers are pressing for state regulation of workers' comp rates to ensure that the cost savings from those restrictions will be passed on to the insurers' customers.

State Sen. Richard Alarcon, D-Van Nuys, is pushing a bill that would create a commission made up of the insurance commissioner, governor and attorney general to review insurance rates.

But the insurance industry opposes the bill, saying it may discourage companies from entering the California market.

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"... the insurance industry opposes the bill, saying it may discourage companies from entering the California market..."