Worker Comp Agency Gives Tepid Forecast on Rate Cuts

The head of California’s dominant workers’ compensation insurer said Thursday that businesses should expect only “modest” premium cuts this year -- the latest sign that significant savings from this spring’s workers’ comp overhaul may take longer than expected.

“We are not promising a big rate decline on July 1,” when insurers must file rates for workers’ comp policies that start or renew in the second half of the year, said Dianne C. Oki, president of the State Compensation Insurance Fund.

The government-backed State Fund writes 53% of the workers’ comp policies in California, mostly for small and medium-sized employers that can’t obtain coverage from private insurance companies. It collected $7.6 billion in premiums last year.

Because of its size, the State Fund is being watched by insurers, employers, union leaders and politicians for evidence that the workers’ comp overhaul signed by Gov. Arnold Schwarzenegger last month will result in notable savings in the cost of treating injured workers -- and lower premiums for business owners.

Oki’s prediction at a hearing of the Senate Insurance Committee didn’t sit well with some committee members.

“They are the leaders of the pack, so it’s disconcerting when I hear them say that workers’ comp rates are going to come down only modestly,” said Assembly Speaker Fabian Nunez (D-Los Angeles). “If State Fund does not reduce rates, it sends a message to the entire industry that they should follow suit.”

Sen. Jackie Speier (D-Hillsborough), the committee’s chairwoman, called Oki’s forecast on rates “disappointing.”

“You can’t impose the kind of reforms we’ve imposed over the last six months and not have them reflected in premiums,” she said. Speier used the hearing to kick off an investigation of the State Fund’s management.

The State Fund’s overseers haven’t decided how much to lower rates, Oki said. She said specific numbers would be released after Insurance Commissioner John Garamendi issued his nonbinding recommendation Wednesday on where he believed rates should be set.

Garamendi, who attended Thursday’s hearing, said he planned to recommend that insurers reduce their premiums by 18% to 20%, based on savings estimates prepared by the Workers’ Compensation Insurance Rating Bureau, an industry statistical and research group.

The rating bureau’s numbers have proved accurate in the past and should prompt the State Fund to bring down its rates in July, said Allan Zaremberg, president of the California Chamber of Commerce.

But insurance industry executives have cautioned that it was simply too soon for them to commit to sharply lower premiums this year.

Speier said persuading the State Fund to bring down rates and improve efficiency was a job for Schwarzenegger.

“The governor has to weigh in with every ounce of his muscular body,” she said.

The governor has said he expected premiums to come down 30% over a relatively short time. But a spokesman declined to speculate on what the State Fund might do.

Jay Hansen, who was appointed by the Assembly speaker to one of the State Fund board’s three nonvoting seats, said he would keep a close eye on the insurer’s rate actions.

“We don’t want modest cuts; we want big cuts,” said Hansen, the legislative director for the California Building Trades Council, a Sacramento-based union organization.