Seabright. CompWest. Employers Direct. Tevis. These are just some of the names rolling off the tongues of agents and brokers in California these days. Add Everest National, Berkshire Hathaway, and about half a dozen others to the mix, and that about sums up the newest entrants to California’s workers’ compensation system.
Previous years showed a drought of carriers willing to write workers’ comp in California. They avoided it like the plague; citing unprofitability and instability in the marketplace. But 2004 showed a new trend: carriers cautiously entering the marketplace, one after another. But why the sudden influx?
The newly-passed reforms by California’s legislature are due much credit, said Nicole Mahrt, western region director for the American Insurance Association. “We’ve seen a real turn around; we’re seeing rates go down on average 16 percent (and that’s after the reforms stopped a 12-19 percent increase in rates) that employers never saw but it was coming down the track,” she said. “Really, it’s just exciting.”
Industry insiders affirmed Mahrt’s testament. “During 2004, there were about a dozen companies that applied to the Department of Insurance to begin writing workers’ compensation business in California,” said Sam Sorich, president of the Association of California Insurance Companies. “That number is about the same number that applied (to the DOI) in the previous two years combined. That reflects the impact of the reforms that have been enacted over the past two years.”
Bringing carriers back into the marketplace will help to alleviate the tremendous strain on the government-backed State Compensation Insurance Fund, which currently writes the majority of workers’ compensation in California. With increased competition, rates will continue to drop, and employers will begin to see some relief. In December 2004, Insurance Commissioner John Garamendi recommended a 2.2 percent rate reduction for new or renewal policies in January of 2005. So far, premium rates have dropped by approximately 10 percent.
The new entrants
Among the newest players to step into California’s beleagured workers’ comp marketplace are the California Insurance Company, Tevis Insurance Company, CompWest, Seabright Insurance Holdings, Everest Re, and Berkshire Hathaway, who recently announced that they intended to write an estimated $1 billion in workers’ compensation through San Francisco-based wholesale brokerage American All-Risk Services.
Berkshire Hathaway’s entrance is perhaps the most prominent sign that the marketplace is rebounding–encouraging other carriers to have the confidence to enter into the marketplace as well. More importantly, Berkshire Hathaway’s venture looks to expand its book of business by hundreds of millions of dollars, in comparison to other new entrants who are cautiously dipping their feet in the water.
Applied Underwriters recently announced that it has provided $50 million in capital to its wholly-owned subsidiary, the California Insurance Company. Applied acquired CIC in 2003 from General Electric’s Coregis Group. The company is domiciled in the state of California and is planning to enter California’s workers’ comp market soon.
“We’re encouraged by the legislative reforms and we think that California has effective legislation that will bring certainty to the marketplace,” said Carl J. DeBarbrie, Jr., senior vice president at Applied.
San Francisco-based CompWest joined the marketplace in September 2004, also with the initial minimum-required capital of $50 million funded by Trident III LP, a private equity fund managed by MMC Capital Inc. Tevis and Seabright followed soon after, and Everest National announced that it had been writing California workers’ comp on a direct retail basis since October 2003.
Maintaining the reforms
At the heart of the heightened activity in California’s workers’ compensation marketplace is the recently passed Senate Bill 899 (Poochigian), which followed 2002’s Assembly Bill 749 (Calderon), and 2003’s Assembly Bill 227 (Vargas) and Senate Bill 228 (Alarcon). All of the bills have had a significant impact on the marketplace, though perhaps none as prominent as SB 899, signed in April of 2004 by Governor Arnold Schwarzenegger, in which injured workers are now required to select a doctor from a pool of doctors approved by both employers and insurers. SB 899 also put a cap on temporary disability payments at two years, and tightened the eligibility for permanent disability benefits.
In January 2005, Senator Richard Alarcon (D-San Fernando Valley) introduced yet another bill, SB 46, which would create a panel of officials appointed by the governor, the insurance commissioner and the attorney general. The panel would have the authority to create a limit on how much insurers can charge for workers’ comp. The bill was sent to the Senate Committee of Labor & Industrial Relations on Jan. 27, 2005.
Despite the increased competition in the marketplace, Mahrt warned against efforts on behalf of applicant attorneys to undermine the reforms. A constant battle for the industry, the trial lawyers consistently work against the reforms in order to maintain the system as one that works in their favor. “If those reforms go away, nothing will have changed. If those reforms are chipped away at, it can be like previous reform efforts in this state where the efforts became failed promises and cost savings never materialized,” she said.
“We feel very optimistic that as long as the reforms can stay on track and are not undermined by some of the litigation that has been filed and threatened, that the workers’ comp system will continue to improve,” Sorich added. “That’s good news for the purchasers of workers’ comp insurance, for the workers, and for California’s economy.”