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Wilson Signs Deregulation of Workers’ Comp Rates : Insurance: Bill is the final and most controversial piece of reform package. Critics say small firms will suffer.

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TIMES STAFF WRITER

Siding with several large insurance companies, Gov. Pete Wilson on Wednesday signed into law a heavily lobbied bill that will deregulate rates businesses are charged for workers’ compensation insurance.

The measure also will strip the insurance commissioner’s office of much of its authority to oversee the workers’ compensation insurance system.

The bill is the final and most controversial piece of the Legislature’s workers’ compensation overhaul. The governor signed other bills in the package earlier this month.

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This element of the reform package fractured party and industry lines, with key Democrats and Republicans on both sides of the issue. The measure generally was favored by large insurance companies and opposed by smaller ones.

Wilson said in a prepared statement that the final bill “opens the workers’ compensation insurance market to rate competition and lower prices for businesses both large and small.”

Small companies with good safety records “will soon be able to reap the benefits of their sound safety management practices,” Wilson said.

He added that once deregulation takes effect and the so-called minimum rate law goes off the books in January, 1995, insurance companies will be free to be “creative and innovative” in how they provide workers’ compensation coverage for California businesses.

Wilson acknowledged that the measure is flawed in that it could open the door to redlining or other types of discrimination by insurance companies, but he called on lawmakers to pass cleanup legislation after their summer recess to protect against those problems.

Steadfast against the bill was Insurance Commissioner John Garamendi, who predicted that small businesses will suffer. “It throws small business to the predatory sharks of the insurance industry,” said Garamendi, a likely Democratic candidate for governor in 1994. “The cleanup legislation the governor proposes is going to have to be a mop to clean up the blood.”

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Garamendi also predicted that small employers, particularly in Southern California, could be looking at massive workers’ compensation rate increases.

The minimum rate law has been the focus of some of the most intense lobbying seen in Sacramento. Insurance companies are among the most active groups in the Capitol, spending more than $2 million a year on lobbying and more in campaign donations.

The Council on California Competitiveness, chaired by Peter V. Ueberroth, last year called for repeal of the minimum rate law. But employer groups were not unanimous in their position on the final product. The state Chamber of Commerce was neutral, while the California Manufacturers’ Assn. was supportive.

Wilson made his decision after his staff held two private meetings attended by at least 40 insurance industry lobbyists, lawyers and executives last week. He followed up by conferring Monday with a smaller group of insurers and their lobbyists.

The Republican governor’s action placed him on the side of Democratic Assembly Speaker Willie Brown, who had pushed hard for the bill’s passage.

Wilson’s decision was hailed by large, East Coast-based insurance companies represented by the American Insurance Assn., which declared that it will help “establish a new partnership between insurers and their policyholders.”

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At the urging of business interests and organized labor, the governor and Legislature this year restructured the fraud-ridden system that compensates and rehabilitates workers injured on the job.

Wilson and the Democrat-controlled Legislature fashioned a compromise they say will cut $1.5 billion from the $11-billion-a-year system, and boost benefits for injured workers from $336 to $490 a week over the next four years.

The final piece of the package involved the minimum rate law, which has been on the books for 80 years. It was established to ensure that insurance companies make a profit in the workers’ compensation field, while offering affordable policies to employers.

It has grown into a complicated system in which each occupation has its own insurance rate. Insurance for office workers is relatively inexpensive, while some manufacturers pay $20 or more in workers’ compensation for every $100 in actual payroll. In the construction trades, costs are even greater. Roofing contractors, for example, pay $40 or more for every $100 in payroll.

“The minimum rate law has mainly insulated the insurance industry from real competition, and interfered with businesses’ ability to find the cheapest prices,” said Sen. Patrick Johnston (D-Stockton), who along with Sen. Bill Leonard (R-Upland) carried the minimum rate repeal.

Joining Garamendi in denouncing the repeal was Assembly Minority Leader Jim Brulte (R-Rancho Cucamonga) and small insurance companies represented by the Coalition of California Compensation Companies.

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Opponents fear that without price controls, large insurance companies could undercut small firms, reducing the number of companies that provide coverage. That, in turn, could lead to higher costs for some employers.

“I’m apoplectic about what it could do to the small employers,” Brulte said.

More than 300 firms provide workers’ compensation insurance in the state. No single company has more than a 5% market share. A special state fund insures 25% of California’s high-risk employers. The state will continue to provide coverage under the new system.

Since taking office three years ago, Garamendi has cut into workers’ compensation insurance profits by lowering the rates, and had been preparing to hold hearings in anticipation of cutting the rate yet more.

Under the legislation signed Wednesday, the insurance commissioner could intervene only if one workers’ compensation insurance company gained a 20% share of the market, or if an insurance company appeared to be near insolvency.

No one knows what the impact will be on the price of insurance, except that there will be “unbridled competition, pretty much,” said Thomas Conneely, president of the Assn. of California Insurance Companies.

Reflecting the uncertainties, Conneely’s Sacramento-based lobby group was neutral on the bill, although it was heavily involved in the negotiations over the workers’ compensation legislation, and its representatives were in the meetings with the governor and his staff on the final bill.

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BACKGROUND

Insurance companies with interests in the workers’ compensation system are among the biggest political donors and lobbyists in Sacramento. The Assn. of California Insurance Companies was neutral on the bill to deregulate workers’ compensation insurance, but the group spent $1.4 million on lobbying lawmakers and other state officials last year and $313,000 in the first three months of this year. In 1992, it gave $332,500 to Republican candidates for state legislative seats, $130,000 to Gov. Pete Wilson and $45,000 to Democratic candidates. Zenith Insurance, a major proponent, spent $112,000 on lobbying last year and $30,000 in the first quarter of 1993, plus $240,000 on campaign contributions during that time. Speaker Willie Brown’s campaign committees were the single biggest recipient of Zenith’s money--$55,500. Wilson received $10,000. The American Insurance Assn., another leading proponent, spent $770,000 on lobbying lawmakers and other state officials last year and $183,337 during the first three months of this year. Another supporter is the American International Group, which spent $33,000 last year and $17,500 in the first three months of this year on lobbying. A leading opponent, the Coalition of California Compensation Companies, spent a combined $205,000 on lobbying last year and the first three months of 1993.

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