Rating Bureau Proposes 3.5% Rate Increase

In a sign that significant savings from the recent overhaul of the workers’ comp insurance system may not come as soon as hoped, an influential insurance rating agency is recommending that premiums go up instead of down at the beginning of next year.

The Workers’ Compensation Insurance Rating Bureau, which is funded by the insurance industry and provides research and statistical analysis to insurers and regulators, is proposing a 3.5% rate increase for workplace-injury policies that start or renew after Jan. 1. Insurers aren’t required to follow the bureau’s premium guidelines. But in recent years, its pricing recommendations have proven to be a bellwether of how much insurers raise or lower premiums.

The rating bureau cautioned, however, that its recommendation doesn’t take into account potential savings from changes in the calculation of worker disability payments scheduled to take effect in January after state lawyers draft dozens of needed regulations.

The bureau’s forecast brought outcries from labor unions and grumbles from business groups. “It’s funny math to us,” griped Angie Wei, legislative director of the California Labor Federation. Business lobbyists suggested that the insurance industry is using the rating bureau to dampen expectations by employers that they’ll soon enjoy the 30% reduction promised by Gov. Arnold Schwarzenegger.

“I think they are being coy,” said Willie Washington, a lobbyist for the California Manufacturers and Technology Assn.

The rating bureau blames the projected increase primarily on a 2.5% hike in weekly benefits to injured workers approved in 2002 that takes effect Jan. 1.

Vince Sollitto, a spokesman for Schwarzenegger -- who has made workers’ comp overhaul a major priority of his administration -- said the bureau recommendations were preliminary and subject to “dramatic” revisions.

He vowed that “the governor expects and is confident that the needed regulations will be in place to allow the reform policies to go into effect” in January. Indeed, most employers’ workers’ comp premiums have already dropped 10% in the last year.

The bureau’s recommendations, once formally submitted next week, will be reviewed by state Insurance Commissioner John Garamendi.

The commissioner in turn is required to issue his own nonbinding recommendation to insurers in October. Garamendi’s savings estimates have been consistently higher than both the bureau’s and actual premiums set by insurers.

Echoing the governor’s office, Garamendi called the bureau number “just a starting point.”

Meanwhile, Democratic lawmakers are renewing their demands for passage of a bill that would regulate insurers’ premiums. They want to guarantee that savings are passed on to employers and not pocketed by insurance companies.

Assembly Speaker Fabian Nunez (D-Los Angeles) said he planned to personally take up price caps with the governor during ongoing budget negotiations.

For his part, Sen. Richard Alarcon (D-Sun Valley) said he’s ready to put a rate regulation bill on the governor’s desk before the Legislature adjourns at the end of August. “The insurance companies are thumbing their noses ... at the Legislature and the governor,” Alarcon said.

Insurers, however, caution that savings estimates could improve substantially between now and January. “It’s a dynamic situation,” said Stanley Zax, president of Zenith National Insurance Corp.