Insurer’s Rate Cut Far Short of Target

Times Staff Writer

California’s dominant workers’ compensation insurer is expected to cut its rates by only 2.9% next year, guaranteeing that most businesses won’t get much relief from soaring premiums and handing the governor powerful ammunition in his bid to revamp the troubled system one more time.

The State Compensation Insurance Fund’s plan for 2004 rates falls far short of the 14.9% rollback that Insurance Commissioner John Garamendi recommended all carriers institute next year, sources familiar with the matter said Tuesday.

Many private-sector workers’ comp insurers have already submitted their rate plans. But businesses and lawmakers have been watching anxiously for the filing by the publicly owned State Fund, which insures more than half the employers in California.


“Companies are going to be furious,” said David Goodreau, head of the Small Manufacturers Assn. of California. “It’s time to grab the torches and pitchforks and go after this Legislature.”

Workers’ comp premiums in California are more than twice the national average. Many business cite workers’ comp costs as a key reason for the weak labor market and the flight of some businesses to other states.

The Legislature in September passed a reform measure that its authors promised would cut the annual cost of running the $29-billion system by $5 billion to $6 billion. That, in turn, was supposed to spur insurers to reduce the premiums employers pay for their mandatory workers’ comp policies.

But critics of the measure contend that the reforms simply won’t yield savings of that size. Half of the 32 privately run workers’ comp insurers that had filed their 2004 rate plans with the Insurance Department as of late November said they would leave rates unchanged next year or even raise them -- some by as much as 27.5%.

Only four tiny insurers planned to cut average rates by the 14.9% sought by Garamendi, who has no direct authority to mandate workers’ comp rates.

A spokesman for Gov. Arnold Schwarzenegger said Tuesday that the filings to date “show how much further we have to go” to fix the system.


“Those limited reforms the Legislature passed are just that -- limited,” Vince Sollitto said. “We have a system that’s greatly out of whack.”

Schwarzenegger has proposed slashing an additional $11 billion from the yearly cost of treating injured workers and giving them disability pay. He wants lawmakers to, among other things, rewrite the definition of a permanent disability and limit the monetary damages employees who are hurt on the job can win from employers.

The governor’s proposals are contained in bills that have been introduced in both the Assembly and the Senate. The Legislature has been meeting in special sessions on a variety of issues since the day after Schwarzenegger’s inauguration last month.

In Sacramento today, Garamendi is scheduled to unveil the rate filings of more than 100 carriers, including State Fund. He and several Democratic lawmakers have publicly hammered the industry in recent weeks for failing to pass along the expected savings from the September overhaul of the system.

California’s deregulated system allows carriers to charge virtually any price they want for workers’ comp policies. Some lawmakers have suggested a return to the regulation of workers’ compensation rates that existed in California until the mid-1990s.

State Fund officials on Tuesday declined to comment on their 2004 rate plan, which appears to be a compromise between the deep rate cuts that Garamendi sought and the financial difficulties in which the carrier finds itself.


So many private carriers have gone belly up or stopped writing policies in the chaotic California market in recent years that employers have flocked to State Fund. That has strained the insurer’s capital to the point that it will need to set aside hundreds of millions of dollars to shore up its balance sheet -- making it tough to cut premiums for its more than 265,0000 policyholders.