Workers' compensation premiums paid by more than 250,000 employers to the State Compensation Insurance Fund will increase July 1 for all new and renewed policies under a plan approved Monday by Insurance Commissioner John Garamendi.
Garamendi said the size of the increase has not been determined, but the action is needed to restore financial health to the state-run fund, which sells more than half of all workers' compensation policies in California.
"It is clear that the workers' comp market in California is broken," Garamendi said. "We have the highest costs in the nation, yet our injured workers' benefits rank in the lower third of all states. It is a system that is destined to crash if serious structural change is not enacted."
Workers' compensation pays benefits to workers who are injured on the job. In recent years, many private insurers have ceased offering the coverage as the state-run fund undercut them for competitive reasons by offering lower premiums.
The state-run fund has sharply increased its market share in the last three years. It sold only about 25% of the coverage in 2000. That rose to 31% in 2001 and 42% in 2002, and stands at about 54% today. As its business soared, its financial status has worsened.
Speaking at a Sacramento news conference in the presence of the chairman of the fund's board, William C. Pauli, Garamendi said the new business plan also includes these steps:
* A continued reduction in accepting new business, with proof being required that the coverage absolutely is unavailable in the private market.
* A reduction of commission rates paid to brokers. Brokers whose work is found to be consistently unprofitable could lose their certification.
* A review of all accounts and implementation of appropriate surcharges for unprofitable accounts at renewal time. Unprofitable accounts are those in which premiums are less than claims paid plus processing costs.
Ron Christensen, a spokesman for the fund, cautioned that details of these steps have yet to be worked out and noted that, as far as broker's commissions are concerned, there is a contract that will have to be renegotiated.
Garamendi and Christensen said that one other aim of the business plan is to increase surplus to be certain that the fund could handle any catastrophe that occurs, such as a huge explosion or terrorist attack.
Christensen said that such funds are considered financially sound if surplus is about one-third of premiums collected annually, which have been running about $5 billion. At present, he observed, surplus is only about one-fourth of premiums. Garamendi also called on the Legislature to drive the claims costs down by reducing medical reimbursements, opportunities for litigation and processing costs.