Comp Insurers’ Profits Soaring, Garamendi Says
California insurers are earning excessive profits on workers’ compensation policies and should be sharing the benefits of two years’ worth of state-mandated cost cutting with employers, state Insurance Commissioner John Garamendi said Friday.
“There’s been virtually a complete collapse in the cost of workers’ compensation claims,” Garamendi said after holding a rate hearing in San Francisco. Claims and disability payment costs have dropped almost 50% since the state’s $24-billion workers’ compensation system was overhauled in 2003 and 2004, he said.
Insurers’ profits have soared as losses, figured as a percentage of premiums, have fallen to a historic low, he said.
The commissioner called upon Gov. Arnold Schwarzenegger to pressure the government-backed State Compensation Insurance Fund to slash rates. Deep premium reductions by State Fund, which controls about 50% of California’s workers’ compensation market, would send a signal to companies to follow suit, Garamendi said.
In 2004, insurance companies paid out just 60 cents in claims for every dollar in premiums paid by employers, according to the Workers’ Compensation Insurance Rating Bureau, an industry-backed statistical service that provides data to the commissioner.
However, the industry was losing money five years ago, paying out $1.03 in claims for each dollar collected in premiums.
The losses led to premium increases of 200% to 300% for many employers.
State Fund, which is the insurer of last resort for California employers, has taken advantage of the improved workers’ compensation business climate to cut premiums to customers and bolster reserves needed to pay future claims.
Garamendi in recent years had warned that the fund had been in shaky financial condition.
State Fund has reduced its premiums by 28.9% since January 2004 and expects to file for another significant reduction in January, said spokesman Jim Zelinski.
Average rates charged by private insurers have been in line roughly with State Fund’s figures, according to the state Department of Insurance.
