State Workers’ Comp Fund Plans 16% Rate Cut

The largest provider of workers’ compensation insurance in California plans to cut its premiums by 16% in January -- the latest sign that the state’s overhaul of its system for treating injured workers is providing significant savings to employers.

The proposed rate cut by the State Compensation Insurance Fund, the government-backed insurer that accounts for more than half the California workers’ comp market, was revealed in a filing Monday with the state Department of Insurance.

The State Fund collected $8.2 billion in workers’ comp premiums last year from its 249,000 policyholders -- mostly small businesses. Its moves can be a strong indicator of the overall direction of workers’ comp premiums, which, including the latest proposed rate cut, will have fallen around 38% since the overhaul began two years ago.

“This continues what have been great results from the governor’s workers’ compensation push,” said Vince Sollitto, a spokesman for Gov. Arnold Schwarzenegger. “Reducing the costs of employment is essential to job growth, and workers’ comp was one of the biggest obstacles in the past.”

The State Fund’s proposed rate cut covers all policies that start or renew in the first half of 2006.

The reduction would be slightly more than the 15.9% rate cut suggested by the Workers’ Compensation Insurance Rating Bureau, an industry statistical service, and more than the 15.3% decline recommended by state Insurance Commissioner John Garamendi on Nov. 10.

Workers’ comp rates skyrocketed early in the decade, and the recent drop in premiums has been welcomed by the state’s employers. But advocates for injured workers contend that the savings are the result of draconian cuts in treatment and benefits for victims of workplace injuries.

The State Fund’s proposed rate drop is in the mid-range of cuts proposed for early next year by about three dozen private insurers. Planned premium cuts averaged 12.2%, according to the Department of Insurance.

Next year’s cuts are “good, but more can be done” given the recent sharp fall in employers’ costs for paying workers’ comp claims, Garamendi said. He noted that insurers earned record profits last year, paying out 39 cents in claims for every $1 in premiums paid by employers.

Insurers, however, need to be careful about cutting rates too deeply and too quickly, given the uncertain long-term conditions of the often volatile workers’ comp market, said Stanley Zax, chief executive of Woodland Hills-based Zenith National Insurance Corp.