State Cuts Rate for Workers’ Comp 12.7% : Insurance: The reduction is the largest ever. But some question whether there will be comparable cuts in premiums.
In a move predicted to save the state’s employers as much as $1 billion, Insurance Commissioner John Garamendi on Wednesday slashed by 12.7% the base rate for workers’ compensation coverage--the biggest reduction of its kind ever in California.
Although they welcomed the announcement as a sign of improvement in the state’s business climate, some insurers and business associations expressed skepticism about how much premiums actually will drop.
But Garamendi said insurance companies are already showing reduced costs because of the recent sharp downturn in workers’ compensation claims and that carriers should pass along their savings to employers.
Garamendi said the rate cut, coming on top of a 7% reduction that took effect in July, also takes into account savings anticipated from a reform package the Legislature approved last summer. Those reforms and a continuing industrywide crackdown on fraud and abuse, he said, “will give employers enormous savings” beginning Jan. 1.
Yet skeptics such as Stanley R. Zax, chairman and chief executive of Woodland Hills-based Zenith Insurance, said not all of the roughly 500,000 California employers that buy workers’ compensation coverage will pay lower premiums. He noted that the reduction announced Wednesday applies only to the so-called minimum rate, or base rate, for workers’ compensation insurance.
Insurers, he explained, are still free to impose surcharges that could more than offset any cuts in the base rate. Zax said insurers will slap such surcharges on many employers, especially those expected to face many workers’ compensation claims because of poor workplace safety standards or poor employee relations.
Garamendi “would like to make it sound like he controls the equation, but he doesn’t. This isn’t a rollback,” Zax said. “This isn’t (a eduction in) the maximum price. This is the minimum price.”
“This is a question of what price will the market charge, not what price he says. It’s two different issues,” he added.
But Gladys Ikeda, a special assistant to Garamendi who handles workers’ compensation issues, countered that Insurance Department officials are confident employers will realize major savings on their 1994 insurance policies.
She said rate deregulation, mandated by the Legislature for 1995, will push competing insurers to lower premiums.
Although a news release from the Insurance Department placed the combined savings from this year’s two rate cuts at “more than $500 million,” Ikeda called that figure conservative and predicted savings approaching $1 billion from the new 12.7% reduction alone.
Such savings would vary widely among employers, depending on their size, but the predicted average reduction in premiums would approach $2,000, she said. The rate cut will take effect beginning Jan. 1, when new policies are purchased or when existing policies are renewed.
The State Compensation Insurance Fund, the biggest workers’ compensation carrier in California, said it will pass along the full 12.7% savings to its customers. Martyn Hopper, state director of the National Federation of Independent Business, said the cuts are the “logical outcome” of the fraud crackdown and recent legislative reforms.
On the other hand, the Assn. of California Insurance Companies expressed concern that Garamendi “is attempting to capture savings that have yet to materialize from the new laws.”
In addition, William C. George, executive director of the employer group Californians for Compensation Reform, warned that any savings could be “illusory” if insurers impose higher surcharges.
