Workers’ Comp Cuts Are Pushed

By July, many California employers could be paying less than half what they paid three years ago for workers’ compensation insurance, although the dramatic decline in premiums finally may be coming to an end.

On Wednesday, state Insurance Commissioner John Garamendi recommended that workers’ comp insurers cut their premiums 16.4% for policies that begin or renew during the second half of the year. If companies follow Garamendi’s nonbinding recommendation -- as most have tended to do in the past -- it would bring to 55.1% the cumulative reduction in premiums since the Legislature overhauled the workers’ comp system in 2003 and 2004.

But those savings could be the last substantial drop in rates for a while, industry experts said.

“The early indication is that this is probably it,” said James E. Little, chairman and chief executive of Employers Direct Insurance Co. of Agoura Hills. Savings from the legislative overhaul are bottoming out, he said, signaling a likely end to major premium reductions.

Indeed, some insurers already are balking at cutting their rates by the full recommended amount this time around, said Scott Hauge, a San Francisco insurance broker and director of Small Business California, a statewide advocate for employers.

“It seems that some have said they are not going to go along with the full 16% reduction,” he said. “They’ll mostly be in the double digits, but there’s some hesitation.”

Although claims and related expenses paid by insurers in California rose slightly in 2005, it was the first year-over-year increase since 1999, according to the Workers’ Compensation Insurance Rating Bureau.

The falloff accelerated after the Legislature passed a series of bills that changed the way workers are treated for on-the-job injuries and how disabilities payments are determined -- dramatically lowering the amount insurers had to pay out in claims.

Lower claims losses have allowed insurers to slash rates for their workers’ compensation customers while still profiting. Industry earnings have been on the rise since 2003 and are now the highest in at least 30 years.

Meanwhile, premiums paid by employers dropped to $4.53 per $100 in payroll in July 2005 from a high of $6.47 in July 2003, the bureau said.

In January of this year, Garamendi called for an additional cut of 16%, which was reflected generally in insurance company rates for the first half of 2006.

Garamendi called his latest recommendation for July conservative. He noted that Department of Insurance actuaries suggested an 18.9% decrease.

The commissioner said he chose the lower figure to compensate for an expected modest jump in the cost of claims in the second half of the year. He predicted that costs could rise because of lawsuits on behalf of injured workers and the issuance of state regulations making it harder for insurers to deny care.

“I have received many complaints from injured workers and medical providers regarding the provision of medical benefits,” Garamendi said. He suggested that insurance companies could be abusing their new power to review doctors’ treatment plans to delay or deny medical care.

Labor unions and advocates for injured workers are pressing Democratic lawmakers and the administration of Gov. Arnold Schwarzenegger to swing the workers’ compensation pendulum back toward the center.

“This whole thing has been calculated to benefit insurance companies and employers,” said Barry Broad, a lobbyist with the International Brotherhood of Teamsters. “But right now, I think there are some abuses in the system that need to be corrected, and that might result in some slight increase in costs.”