Calif. Commissioner Calls for 15.3 Percent Workers’ Comp Rate Decrease

California Insurance Commissioner John Garamendi has recommended a 15.3 percent decrease in the state’s workers’ compensation pure premium rates by winter.

In announcing the move, the Commis-sioner also criticized insurers for not passing along savings more quickly to employers. He noted while he had recommended cumulative decreases of 36.5 percent before, insurers had lowered rates by only 26.7 percent.

“This does not compute,” he said. “Insurance companies are currently paying just 38.5 cents of every premium dollar they collect for the care of injured workers. It’s obvious that the savings are there–insurers simply need to pass them on.

“They are making whopping profits,” he noted in a news conference on Nov. 10.

“Insurers are now lowering their rates and passing them on as fast as possible,” according to Nicole Mahrt, director of public affairs for the western region of the American Insurance Association. “Insurers needed to see what was really going to happen with reform. Previous efforts turned into failed promises, projected cost savings never materialized, and court cases have turned things upside down in the past so you had situations where a cost saver turned into cost driver. So I think insurers needed to see what was going to happen,” she said.

Sam Sorich, president of the Association of California Insurance Companies, added that the industry loss ratio calculated by the Commissioner “is misleading because it is merely a snapshot in time. It does not consider rate decreases that went into effect July 1, 2005. New rate changes are taking into account the lower costs that recent reforms have achieved.”

The Commissioner reiterated that the reforms brought about by AB 227 and SB 228 are working. That legislation helped halt what he called an “up-escalator” of rising workers’ compensation costs that were choking businesses and the state’s economy.

Sorich agreed the rate cuts are continuing to reduce employer costs. In July 2003, the average rate paid by employers was $6.50 per $100 of payroll. By January 2005, the rate dropped to $5.26 per $100 of payroll.

The Commissioner noted that much of the reforms are still being implemented, as are reforms brought about by SB 899. As reforms progress, that may slow the pace of future decreases in the pure premium rate.

Insurers are not bound by Garamendi’s recommendation, but it serves as a benchmark for carriers when they set their rates.

“The ultimate judge is competition in the market,” Mahrt said. “If insurers want to compete, they need to offer competitive rates.”

Legislation enacted changes in 2003-04 to lower medical and benefit costs. Garamendi’s latest proposal covers employers who renew or obtain new policies starting Jan. 1, 2006.