State Fund Posts 9.9% Dip in Comp Rates

Thousands of small-business owners who buy workers’ compensation insurance from the government-backed State Compensation Insurance Fund are likely to be let down when their policy renewal notices begin arriving next month.

A massive overhaul of the workers’ comp system, orchestrated by Gov. Arnold Schwarzenegger, so far has resulted in a drop of 9.9% in the State Fund’s premiums since the second half of 2003, according to a filing Friday with the Department of Insurance.

The reduction is much smaller than what many business and political leaders were expecting. It’s especially significant because the State Fund, which writes 53% of the workers’ comp policies statewide, sets the tone for rates paid by all employers.

“I’m deeply disappointed that State Fund isn’t leading the way to demonstrate that the reforms now in place translate into rate relief for business,” said Assembly Speaker Fabian Nunez (D-Los Angeles), who played a role in crafting the workers’ comp bill that Schwarzenegger signed into law April 19.

Nunez said he planned to voice his concerns to the governor Sunday when they attend the Los Angeles Lakers game together at Staples Center.

The State Fund filing also frustrated leaders of small-business organizations. The groups lobbied the Legislature heavily for changes in the workers’ comp system and threatened to put the issue on the ballot if lawmakers didn’t cut costs in the troubled system for aiding injured workers.

“With State Fund being the leader in the market ... it’s somewhat discouraging that they have not done a bigger decrease” in rates, said Michael Shaw, assistant state director of the National Federation of Independent Businesses, which represents about 35,000 companies in California employing an average of seven workers each.

Many federation members who saw their premiums jump by 200% to 300% over the last four years “will not be pleased with what they see” when they get their policy renewal notices during the second half of this year, Shaw said.

Schwarzenegger, who predicted that his workers’ comp overhaul would slash premiums by 30% when fully implemented, believes the initial premium cuts proposed by the State Fund and by private insurance companies are “a positive trend in declining rates,” said spokesman Vince Sollitto.

The governor expects that workers’ comp costs will fall further and that bigger savings will begin showing up in employers’ insurance bills next year, Sollitto said.

In the meantime, he said, Schwarzenegger will appoint at least two new members to the State Fund board of directors and is committed to making sure the insurer operates “as efficiently as possible.”

Insurance Commissioner John Garamendi has recommended premium reductions about twice as large as those proposed by the State Fund. The State Fund’s proposed cuts also don’t achieve the savings that the insurance industry’s own research bureau has estimated would accrue from a series of workers’ comp bills passed during the last six months.

So far, 23 private insurers have filed their workers’ comp rate proposals for the second half of the year, and the average rate reduction is slightly less than 12%.

The State Fund’s proposed cut is in line with the 10% reduction by the state’s fifth-largest workers’ comp carrier, Zenith National Insurance Group, but less than the 16.5% cut posted by Granite State Insurance Co., a unit of American International Group, the largest private workers’ comp insurer in California.

A 10% cut in premiums won’t mean much to Jeff Kavin, an owner of Greenblatt’s Deli in Hollywood.

“If I get a 10% reduction, I’ll be paying $108,000 for what I was paying $28,000 in 2001,” he said of his workers’ comp premiums. “And I thought it was outrageous at $28,000.”

Still, Kavin hopes bigger savings will come eventually.

“I take more of a long view,” he said. “I want to see that the reforms really work.”