Going Slow on Cutting Premiums
California employers are likely to see lower insurance premiums now that the state has overhauled its costly workers’ compensation system -- but they’ll have to be patient.
A veteran business lobbyist warned Thursday that the cost savings that analysts were projecting from the overhaul signed into law April 19 by Gov. Arnold Schwarzenegger probably would not be reflected in workers’ comp premiums anytime soon.
And insurance industry executives cautioned that it was too soon for them to commit to sharply lower premiums in the second half of the year.
The Workers’ Compensation Insurance Rating Bureau, a research and statistical service backed by workers’ comp insurers, told Insurance Commissioner John Garamendi during a hearing Thursday that early projections indicated immediate savings of about 15% from the recent changes in the workers’ comp system.
But premiums for coverage of medical care and compensatory benefits for injured workers, which soared by 15% a year over the last four years, aren’t likely to come down quickly enough to satisfy business owners expecting bills before Dec. 31, said Willie Washington, a legislative advocate for the California Manufacturers and Technology Assn. in Sacramento.
“I don’t think that the small employers, who got 50% and 100% increases over the last few years, are going to be happy,” Washington said.
“They’ll think the reduction is too small.”
“We have to get it across to them that this is the beginning of premiums coming down. And they should be coming down on a regular basis.”
Garamendi, though conceding that the bulk of the new bill’s relief won’t be felt until next year, said he was likely to recommend that insurers cut rates beginning this summer by at least 18%. The proposed reduction, he said, would reflect savings from this year’s law and two other workers’ comp bills passed by the Legislature in 2003.
The commissioner’s advice, however, is not binding on insurance companies.
Insurers say they’ll analyze the rating bureau’s estimates, Garamendi’s numbers and their own research before setting midyear premiums.
“We’ll come up with our best guess as to what is prudent for us to do,” said Stanley Zax, president of Woodland Hills-based Zenith National Insurance Co., the fifth-largest workers’ comp writer in California.
Zax said the rating bureau’s estimates were reasonable “if we were living in a perfect world.” But he warned that it would take time to know whether the forecasts would pan out.
He predicted that Zenith would cut rates by somewhere between 5% and 14%.
Another major insurer, Switzerland-based Zurich Financial Services, said it wouldn’t speculate on how much, if at all, its premiums might decline this year.
Company spokesman Keith Owens said Zurich didn’t expect to see an effect on claims until 2005, when changes in the calculation of permanent disability benefits for workers -- a key provision of the overhaul -- are expected to go into effect.
The insurers’ caution doesn’t please consumer groups, Democratic lawmakers or the attorneys who represent injured workers.
All three groups are pushing bills to regulate workers’ comp rates to guarantee that savings from the overhaul are passed on to business.
Rates for employers should drop by an immediate 25% to reflect savings from earlier bills, Assembly Speaker Fabian Nunez (D-Los Angeles) said Thursday
Douglas Heller, director of the Foundation for Taxpayer and Consumer Rights, a Santa Monica activist group, said premiums should drop by at least the 14% estimated by the rating bureau.
“The only reason they wouldn’t pass every dime of savings back to business is there are no regulations requiring them to do it,” he said.
