State Firms See Big Jump in Workers’ Comp Rates

A five-year price war in the workers’ compensation industry has ended, leaving California employers with sharply higher premiums for the mandatory insurance covering workers who are injured on the job.

Business owners have known for months that bigger bills were coming because of market forces unleashed by deregulation and the persuasion of state Insurance Commissioner Chuck Quackenbush, who recommended in November that insurers hike the price of workers’ compensation insurance by 18.4% to ensure industry solvency.

But some employers are seeing rate increases of 25% or more, partly because of a crackdown on individual discounts that insurers were offering. However, backers of legislation to increase workers’ compensation benefits contend that the complaining might be politically motivated.

During the state’s last economic boom a decade ago, rising workers’ comp rates--along with high housing costs--were often cited as deterrents to attracting and keeping businesses in California.

Betty Jo Toccoli, president of the California Small Business Assn., had heard reports of rate increases for firms in physically risky industries but was shocked when the insurance bill for her small clerical company came in more than 200% higher than last year.

“I didn’t expect it to be me,” Toccoli said, noting that her workers’ comp costs have soared to $2,000 a month to cover seven employees. Last year, Toccoli paid $600 a month to a different company that has stopped selling workers’ compensation insurance.

Broker Fritz Mutter, president of Pasadena-based Golden Pacific Insurance Services Inc., said many of his clients were handed hefty rate increases only a few days before their year-end renewal and, when they tried to shop around, were unable to get timely rate quotes out of other insurers who were suddenly inundated with business. Most are paying 10% to 25% more than last year, although a few are seeing rates double or triple because Quackenbush’s office has asked insurers to limit discounts to no more than 25%, Mutter said.

“This is an increase in expense that they can’t pass along and that comes straight off the bottom line,” Mutter said.

Since 1995, the premiums that business owners pay for workers’ compensation insurance have been set by the market rather than by the Insurance Department, which still makes annual nonbinding recommendations on rates. That deregulation of rates, part of an overhaul of the high-cost system, sent insurance companies scrambling for market share by drastically cutting their prices, said Ed Woodward, president of the California Workers’ Compensation Institute, an Oakland-based nonprofit organization of insurers and self-insured employers.

Insurers in California last year spent $1.40 on claims and expenses for every $1 in premiums they took in, setting the stage for increases, he said.

“Unless the laws of economics have been repealed, you’re going to see rates go up,” Woodward said.

Insurance Department legislative analyst Tim Taylor said price-cutting was threatening the financial health of several insurers.

“For a long time, employers have been getting a really good deal,” Taylor said. Quackenbush sympathizes with business owners whose costs have suddenly risen, “but the solvency of the industry is his primary concern.”

Unions, which last year backed legislation to boost workers’ comp benefits, see political maneuvering in the groaning over higher rates. Gov. Gray Davis vetoed that bill, saying it was too costly.

“The folks that don’t want to see a benefit increase are trying to exploit the rate increase,” said Tom Rankin, president of the California Labor Federation, AFL-CIO. The benefit legislation “is definitely going to be back” in 2000, he said.

The California Chamber of Commerce, which opposed the legislation, is concerned that average workers’ comp claim costs are rising because of higher medical costs, increased administrative paperwork and litigation, said Julianne Broyles, director of insurance and employee relations. “This does put a higher emphasis on ensuring that if any benefit increases are enacted this year that reforms get to be associated with it,” she said.

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Workers’ Comp Increases

Prodded by state Insurance Commissioner Chuck Quackenbush, insurance companies are charging employers more for workers’ compensation insurance. Here are the increases in base rates for 2000 charged by the largest insurers:

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Insurer Rate Increase Fireman’s Fund 24.7% Fremont Comp. 23.6 Superior National 20.3 Liberty Mutual 19.7 Kemper 18.4 AIG (American Int’l. Grp.) 18.4 Republic Indemnity 18.4 Great American 15.2 State Comp. Fund 9.5 CNA 7.4 Avg. overall rate change: 17.3

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Source: California Department of Insurance