12.6% Rate Hike for Workers’ Comp Denied : Insurance: Commissioner Garamendi says the industry, in seeking the $1-billion increase, submitted ‘rotten data’ to support the request.

State Insurance Commissioner John Garamendi on Monday denied a $1-billion rate increase sought by insurance companies that cover employers of workers injured on the job.

In rejecting a 12.6% rate hike for next year, Garamendi said that the insurance industry submitted “wild and unexplained” variations of their own costs to support the increase request.

He called it “rotten data” and invited the industry to have its costs audited and then refile the request sometime in the future. He urged Gov. Pete Wilson and the 1993 Legislature to take another run at reforming the ailing workers’ compensation system in the meantime.

For recession-battered California employers who are not self-insured, the commissioner’s action appeared to offer a measure of relief from the rising cost of an $11-billion program widely considered financially out of control.

One employer organization, the National Federation of Independent Business, which represents about 50,000 small-business members in California, applauded Garamendi’s rejection of the rate increase.

“There simply should not be any increases in the workers’ compensation system until it undergoes very dramatic reforms,” said Martyn B. Hopper, the organization’s California lobbyist involved in efforts to overhaul the system.

But Mark E. Webb, senior counsel of the American Insurance Assn., an industry trade group, accused Garamendi of refusing to perform his legal duty. He said Garamendi had ignored his statutory responsibility to “approve or issue rates for workers’ compensation insurance that are adequate. . . .”

Garamendi, who has tried to force car insurance companies to provide rebates promised by Proposition 103 four years ago, compared workers’ compensation insurers to “pigs at the trough.”

“The industry cannot be allowed to live off the ‘fat’ of a dysfunctional system while so many California employers are forced to live on starvation diets,” said Garamendi, a potential Democratic candidate for governor in 1994.

In defending employers against higher costs, Garamendi appeared to be borrowing a page from Wilson’s workers’ compensation playbook. Often aligned with the insurance industry, the Republican governor has sought to cast himself as a protector of California business and jobs.

Although the California workers’ compensation system is among the nation’s most costly to employers, it delivers among the lowest benefits to injured employees. For years it has defied substantial reform.

Failure to realign the troubled program has been blamed on resistance from powerful special interests--including physicians, lawyers for workers, attorneys for employers, rehabilitation specialists and insurance companies--many of whom would have to make substantial economic compromises.

In rejecting the rate increase sought by the insurance industry for 1993, Garamendi exercised new powers granted him by the Legislature to fully disapprove such requests and demand a tighter accounting of the need for rate hikes.

He said that industry expenses cited as justification for the 12.6% rate increase varied from a low of 8.6% of the premium dollar by the Travelers Insurance Companies to a high of 63.8% by State Farm. The figures were compiled by the Workers’ Compensation Insurance Rating Bureau, an industry clearinghouse that by law makes rate recommendations to the insurance commissioner.

In 1991 and earlier this year, Garamendi did grant rate increases after substantially reducing the requested amounts. Combined, they averaged 4.5%, Garamendi said.

PROP. 103 ON TRIAL: Insurance lawyers and Commissioner John Garamendi’s attorneys face off in court. D1