CALIF. COMMISSIONER IDENTIFIES STEPS FOR STATE FUND TO REDUCE RATES:
California Insurance Commissioner John Garamendi released a statutorily mandated report on the State Compensation Insurance Fund's (SCIF's) potential to reduce workers' comp rates based on his review of its financial condition, underwriting practices and rate structure. The report, prepared by the California Department of Insurance (CDI), found that SCIF could realize additional rate reductions of 5.9 percent for all policyholders by implementing recommendations made by IBM Business Consulting Services (IBM), redirecting its investment portfolio and reducing maximum commission rates. Any potential rate decreases would be in addition to the 9.7 percent in reductions SCIF filed during 2004. "Our exam of SCIF, to the extent it was possible, shows much room for operational improvement as we balance the twin goals of lowering rates and preserving the fund's solvency," Garamendi said. CDI determined that SCIF's underwriting practices, in at least two significant areas, hinder its ability to ensure that each eligible employer is paying the lowest premium possible or that there is not disparate treatment of policyholders in terms of the premiums and deposits paid. Additional findings from CDI's review include: SCIF's current underwriting procedures do not allow the Company to maximize employer participation in the Kaiser Alliance and Preferred Provider Network (PPN) programs and safety group programs. State Fund's failure to communicate the availability of these programs to all policyholders and its failure to collect information to determine who is eligible for participation result in the application of rates that are unfairly discriminatory, according to CDI. SCIF has not adhered to the implementation timeline IBM identified for realizing savings from the recommended reforms and, therefore, will not realize the $294 million of annual savings IBM estimated by 2005. This potential savings translates to a potential rate reduction of approximately 4 percent. SCIF has adopted different procedures for handling direct written accounts with less than $25,000 in annual premiums. This has resulted in small accounts not receiving the same level of disclosure regarding the future costs of their workers' comp coverage and having these future charges calculated on the basis of less accurate information than is used for all other, larger accounts. In reviewing SCIF's rate structure, CDI found that SCIF should, among other things, adhere to its filed rating plan by providing credit to directly written accounts.
WASH. WORKERS' COMP BENEFITS INCREASE 2.3 PERCENT:
Workers currently receiving Washington workers' comp time-loss or pension benefits received a 2.3 percent cost-of-living increase effective July 1. The new maximum monthly benefit is $3,879.40 or 120 percent of the state's average monthly wage for workers injured after June 30, 1996. The increase is based on the average annual wage of all workers in Washington. That wage—set by the Employment Security Department—rose to $38,794, or 2.3 percent in 2003 from $37,940 in 2002. State law requires that maximum benefits be re-calculated each July 1 to reflect the change in the state's average wage from the previous calendar year. An injured worker's maximum time-loss or pension rate coincides with the date of their injury. For workers injured between July 1, 1995, and June 30, 1996, the maximum monthly benefit will rise to $3,717.75. Injuries occurring July 1, 1994, through June 30, 1995, will have a maximum rate of $3,556.11. Injuries on July 1, 1993, through June 30, 1994, will have a maximum rate of $3,394.47. The new monthly maximum for injuries occurring July 1, 1988, through June 30, 1993, will be $3,232.83. Maximum time-loss and pension benefits for injuries occurring before July 1, 1988, amount to 75 percent of the state's average wage or $2,424.62 a month. The amounts differ because over the last decade the state Legislature increased the benefits based on when a worker was injured or became ill. The July 1 increase applies to both State Fund and self-insured employers.
AIA SAYS WORK COMP REFORMS PRODUCE AVERAGE 26 PERCENT RATE SHIFT:
The American Insurance Association (AIA) announced that recently enacted reform legislation passed in 2003 and this past spring has prompted a 26 percent swing in average workers' compensation rates. A survey conducted by the AIA comparing 190 mid-term pure premium rate adjustments filed by insurers, as of July 1, 2004, with rate filings made for policies starting or renewing on or after July 1, 2003, shows that, on average, rates decreased 13.9 percent during this 12-month period. In contrast, in July 2003, the Workers' Compensation Insurance Rating Bureau (WCIRB) had advised Insurance Commissioner John Garamendi to increase the average pure premium rates by 12 percent for policies, effective Jan. 1, 2004. In other words, there has been a swing in rates, on average, of 26 percent. "Because three reform measures have become law since September 2003, we are starting to turn the corner on escalating system costs. These reforms are bringing stability and predictability to California's workers' compensation system," said Ken Gibson, AIA vice president, western region. "Just a year ago, the WCIRB recommended a 12 percent rate increase. In the span of only nine months, insurers have actually decreased rates an average of almost 14 percent. The good news is that both Insurance Commissioner Garamendi and the WCIRB expect additional cost savings once all aspects of the reform legislation are implemented," Gibson said. "In order for these projected savings to become realities, it is critical that Commissioner Garamendi and policymakers use their influence to ensure that the implementation process stays on track and that the reforms are implemented as they were intended and not sabotaged by loopholes devised by applicants' attorneys and other providers."
CALIF. GOV. APPOINTS THREE MEMBERS TO STATE FUND BOARD:
Calif. Governor Arnold Schwarzenegger announced the appointments of Jeanne Cain, Kent Dagg and Vincent Mudd to the State Compensation Insurance Fund Board. Cain was also named chairwoman by the governor. "Reinvigorating the State Compensation Insurance Fund Board is the next step in achieving real workers' compensation reform for California's employers and workforce," Governor Schwarzenegger said. "It is essential that the Board work toward creating an environment of increased competitiveness in the marketplace to lower insurance costs to businesses and attract more insurers to California. I am confident that Jeanne, Kent and Vincent are keenly aware of the issues confronting the system and will work to foster an atmosphere that refocuses the State Fund toward its originally intended role in the market." Jeanne Cain has more than 20 years of experience with the business community and the legislative and executive branches of government. She currently serves as senior vice president of the California Chamber of Commerce where she oversees the development of public policy and strategy. Prior to that, Cain was vice president of the American Insurance Association. Before joining the association, Cain worked for four years as vice president of government relations for the California Chamber of Commerce serving as chief legislative advocate and specialist on health care issues. Her government experience includes service in Governor Pete Wilson's administration as legislative secretary and deputy chief of staff. Kent Dagg is currently the executive director of the Shasta Builders Exchange, where membership has doubled since he took leadership in 1987. In addition, he manages 10 employees and three corporations, including a 501(c)6, a 501(c)3 and a for-profit corporation. In 1995, he formed Golden State Builders Exchange which pooled all the individual workers' compensation groups from 30 builders exchanges statewide into one group. Dagg is also the founder of the Construction Boot Camp. His experience also includes service on the staff of Assemblyman Stan Statham from 1978 to 1987. Vincent Mudd is president and CEO of San Diego Office Interiors. He is currently the acting president of the Haworth Dealer Council, Workplace Alliance Inc., and Big Brothers and Big Sisters of San Diego County. Mudd is also an executive board member of the San Diego Regional Chamber of Commerce and executive board member of the San Diego Regional Economic Development Corporation. Through his experience as a small business owner, Mudd became the leading expert on workers' comp for the San Diego Chamber of Commerce. The State Compensation Insurance Fund provides workers' compensation insurance coverage for many of California's small and medium-sized businesses. As the insurer of last resort, the fund provides needed coverage at affordable rates. Its board is entrusted to carry out this mandate. The fund currently has a 60 percent market share in California. The Board is comprised of five Governor's appointees and three non-voting members which include: the director of the Department of Industrial Relations, the Speaker of the Assembly and the Senate President Pro Tempore. Members appointed by the Governor must be a policyholder or the employee or member of a policyholder in the State Compensation Insurance Fund for one year prior to their appointment, and must continue in this status throughout the duration of their appointment period. The Governor appoints one member from organized labor and four public members and names the chair.
ACIC DISAPPOINTED IN CALIF. SUPREME COURT ACTION:
The Association of California Insurance Companies (ACIC) expressed disappointment in the decision by the California Supreme Court not to review a key case related to insurance rate regulation in the state. The Court decided not to accept the petition to review the Court of Appeals' ruling in the Donabedian v. Mercury Insurance Company case. ACIC had submitted a letter urging the Court to accept the case. "As we said in our letter to the Court, the Court of Appeals' ruling throws the law into a state of confusion," said ACIC President Sam Sorich. "Under the appellate court's ruling, insurance companies are uncertain whether their rates are to be regulated by the insurance commissioner or by hundreds of superior court judges around the state. By approving Proposition 103, California voters decided that the regulation of ratemaking activities should be centralized in the office of the insurance commissioner. Delegating rate regulatory authority to the courts is contrary to the voter-approved proposition. Moreover, regulating rates through class action lawsuits would lead to chaos." Sorich noted that the issues presented in the Donabedian case are being litigated in other cases pending in appellate courts. "We hope that the Supreme Court will accept the appeal of one of those cases so that the issues can be resolved and certainty can be restored to California's insurance regulatory system," he said.
