Garamendi Rips Workers’ Comp Insurers’ Expenses

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Insurance Commissioner John Garamendi said Thursday that the overhead and expenses of the state’s workers’ compensation insurance sellers are “grossly bloated” and that he will continue to hold down their rates in the interest of the overall economy.

“The business community won’t support a continuation of cost padding,” Garamendi said in an interview. He added that the underwriters “must yield to the general public interest” during the current economic slump.

The commissioner’s remarks came a week after he cut a statewide workers’ compensation insurance rate increase to 1.2% from a requested 11.9%. After his action, two big companies announced that they would shift sales away from Southern California, where claims are most frequent, to Northern California.


Transamerica Insurance Corp. said it would reduce the number of agents it has selling workers’ compensation coverage in Los Angeles, Ventura, Santa Barbara, Riverside and San Bernardino counties from 150 to 50 and reduce annual sales in those areas from more than $80 million to $51 million by the end of 1992.

Garamendi refused to accept responsibility for the insurer’s cutbacks. “The companies were moving out of Southern California long before any action by me, largely because of the extraordinary levels of claims, fraud and abusive practices here,” he said.

The stocks of several big California workers’ compensation sellers have dropped sharply since Garamendi’s action. The stock of CII Financial, for instance, closed at $6.875 on Thursday, down from $11.875 on Dec. 5.

Garamendi said Thursday that the workers’ compensation business has been in “a crisis situation for at least two years.” The system has been criticized for its high premiums charged to businesses and low benefits paid out to workers.

He accused the companies of failing to report many fraudulent claims to the state Insurance Department and said they must now get used to a lasting change “in the regulatory environment.”

Some state business leaders Thursday supported Garamendi’s decision to cut back the rate increase, but added that they support changes in the law to restrict certain worker claims.


“I think the squeeze set up on the rates by Garamendi certainly will help, because the 11.9% would have been so hard to absorb right now,” said Kirk West, president of the California State Chamber of Commerce. “But in the long run, you have to deal with the cost drivers in the system, the excessive utilization and case load.”

However, Robert J. Gore, a spokesman for the Assn. of California Insurance Cos., contended that in criticizing the sellers’ overhead, Garamendi may be jeopardizing worker safety.