Average Workers’ Comp Rate Cut Is 3.6%
Insurance Commissioner John Garamendi said Wednesday that workers’ compensation carriers would cut their California rates by an average of 3.6% next year -- a rollback he hailed as a “dramatic” reversal of several years of skyrocketing premium increases.
But employers called it a pittance, saying it would do little to help immediately tame rates that, for many firms, have surged wildly.
“It’s insignificant, it really is,” said Diane Frazier of Frazier Tile in Danville, whose premiums have doubled since 1999. “They keep talking about decreases. But all I’ve seen is rates going up and up and up.”
Garamendi unveiled the rate plans of 95 workers’ comp carriers, who together insure three-quarters of employers in the state, at a news conference in Sacramento.
Among them was the State Compensation Insurance Fund, the public entity that provides coverage to more than half of California’s businesses. It plans to cut rates for policies renewed after Jan. 1 by 2.9% -- far short of what many had hoped in the wake of landmark workers’ comp reforms passed by the Legislature in September.
The architects of the legislation had projected that the changes would trim as much as $6 billion annually in medical costs from California’s $29-billion system. That prompted Garamendi, who has no authority to dictate rates in the state’s deregulated market, to recommend that carriers reduce average rates by 14.9% to provide relief to policyholders.
State Fund officials conceded Wednesday that the average 2.9% cut wouldn’t translate into actual premium decreases for many policyholders, at least not right away. That’s because a 19% average rate hike instituted by State Fund back in July has yet to be applied to policies with renewal dates ranging from Jan. 1 to June 30, 2004. Thus, even factoring in the carrier’s planned 2.9% cut, some customers will see hefty increases in their premiums after the first of the year.
San Francisco-based Lawson Roofing Co., whose State Fund policy is up for renewal in January, is bracing for a hike of 15% or more when it receives its renewal notice this month, Senior Vice President Richard Lawson said.
“The public perception is that this problem has been fixed, but it hasn’t,” Lawson said. “When I see rates go down is when I’ll start believing it.... Every business owner in the state should be angry about this.”
Garamendi, who has blasted the insurance industry publicly in recent weeks in an attempt to get carriers to pony up fatter rate cuts, tried Wednesday to put the best face on the skimpy reductions.
“We have seen a dramatic change in the market,” he said. “We are no longer on the up escalator. We are on the down escalator.”
Still, he urged the Legislature to get cracking on another round of reforms with the goal of reducing California’s workers’ comp rates to the national norm. At present, the state’s average rates are more than double the U.S. average.
Garamendi has suggested a slew of additional changes, some of which are similar to a package of legislative reforms supported by Gov. Arnold Schwarzenegger that were recently introduced by Republican lawmakers in the Assembly and Senate.
Among other things, those bills seek to overhaul the disability portion of the workers’ compensation system, reduce costly litigation and crack down on fraud and waste in the system.
But some Democratic legislators and consumer activists have suggested that closer scrutiny of the insurance industry or even full-scale government regulation is what is needed to ensure that carriers pass along reform savings to policyholders instead of lining their pockets.
Garamendi opposes that approach because he says it would discourage new carriers from entering the California market and taking the pressure off of State Fund.
So many private carriers have gone belly up or stopped writing coverage in California’s chaotic market in the last few years that businesses have flocked to the public entity, the only place where many employers could obtain mandatory workers’ compensation insurance. That has created a dangerously lopsided situation in California, with State Fund now controlling more than half the market and its capital strained to the brink by all that growth.
It wasn’t supposed to be this way. Created in 1914 by the Legislature, the nonprofit State Fund was set up to provide California companies with a competitive alternative to private-sector insurers, some of which were charging exorbitant rates at the time. State Fund also serves as the insurer of last resort.
Although its board members are appointed by the governor, State Fund traditionally has operated autonomously.
The carrier has been under tremendous pressure in recent months from Garamendi to accomplish what some experts say are two conflicting goals -- setting aside hundreds of millions of dollars to strengthen its balance sheet while simultaneously slashing premiums to ensure that rate reductions promised by the September legislative overhaul come to pass.
Garamendi expressed disappointment Wednesday that State Fund’s planned rate cut wasn’t bigger but said the carrier’s actions had at least helped stem the tide of raging rate increases.
