Disparity on Comp Rate Cuts Persists
California employers are likely to see their workers’ compensation premiums fall again this summer, but not as much as Insurance Commissioner John Garamendi would like.
Garamendi issued his semiannual recommendation for workers’ compensation rates Wednesday, calling for an 18% cut on policies that start or are renewed July 1 or later. The recommendation isn’t binding, however, and insurers appear set on offering smaller premium decreases -- between 12% and 14%.
Garamendi said the proposed reductions -- coupled with earlier cuts in workers’ comp premiums -- showed that the two-year overhaul of the state’s troubled system for compensating victims of workplace injuries was having an effect. Still, he repeated his earlier complaint that savings from the changes have yet to be fully passed on to the state’s employers.
“Many insurers have been slow to fully implement my recommended reductions and pass on the savings as rapidly as possible,” the commissioner said. “It is past time for the savings from reform to be passed along to overburdened employers and injured workers.”
Nearly all sides agree that a series of changes approved by the Legislature in 2003 and 2004 have drastically cut costs for workers’ compensation insurers, but there is plenty of disagreement over the size of the savings -- and how much should be immediately passed on to businesses.
Although Garamendi is calling for an 18% reduction in July, the State Compensation Insurance Fund, which writes about half of all workers’ compensation policies written in California, said Wednesday that it would cut rates an average of 14%. Earlier this week, Zenith National Insurance Corp. said it would cut rates 12%. And an influential insurance industry rating bureau last month recommended a 13.8% cut.
Including previously implemented cuts, the premiums charged by the government-backed State Fund will be down 26.2% since the workers’ compensation overhaul began two years ago.
Garamendi contends that overall workers’ comp premiums should be down 36.5% during that period.
The disparities are partly related to differences in corporate cost structures at various insurers, and differences in claim histories among employers, said Sam Sorich, president of the Assn. of California Insurance Companies.
But there’s also an element of uncertainty, Sorich said, because the overhaul of the workers’ comp system is still a work in progress and lawsuits and proposed legislation have already surfaced that could potentially derail portions of it.
“It appears that the reforms are producing significant cost savings, but some elements are unknown,” Sorich said. “A portion of the reform was only implemented in January. The market is adjusting.”
Meanwhile, a group that represents injured workers said rates should be slashed 27% this summer, given the profits insurers are currently earning.
“Huge cost savings have already been realized by insurance carriers, but insurers have refused to lower rates and are gorging on excess profits,” said Mark Hayes, president of Voters Injured at Work.org, a nonprofit advocacy group. “Meanwhile, a horror show of misery continues for Californians injured on the job. Injured workers are losing their cars, health, homes and dignity while insurers pocket record profits.”
