Attempts at Workers’ Comp Reform Could Hurt Agents, Small Business

According to Insurance Brokers and Agents of the West (IBA West), a workers’ compensation bill moving its way through the California Legislature doesn’t go far enough in attempts to reduce costs to reform the troubled system. Without compromise, the bill could be headed for a veto by the Governor Gray Davis, putting off the problem for another year and allowing an already troubled situation to worsen.

The bill working its way through the legislature, SB 71 (Burton & Calderon), proposes a benefit increase of approximately $2.7 billion. Some estimates put the total cost of the bill as high as $3.6 billion. One analysis suggests an increase beyond $440 million would have a negative impact on the economy. Moreover, attempts to change the board of the State Compensation Insurance Fund (State Fund) could politicize one of the few working segments of the industry.

Agents and Brokers Legislative (ABL) Counsel Dietmar Grellmann said significant increases in workers’ compensation insurance rates could force many small employers to either go out of business, scale back operations, or expand operations outside of California.

Robert Levering, Levering, McGee, Thielen & Purves, Insurance Brokers Inc., Sacramento, testified at an Assembly Insurance Committee hearing this week on behalf of IBA West and criticized efforts in the bill that would politicize the State Fund. Levering said attempts to add political members to the fund’s board would keep it from operating like a private business.

In order to prevent continued deterioration of the system, ABL Committee Chair Matthew DeFendis said the bill would need to be amended to provide a benefit increase for severely injured workers and contain the real and substantive reforms that address administrative and legal costs. DeFendis stated that the principal concern for agents and brokers is the deterioration of competition in the marketplace. He added that with significant concerns over the financial well-being of several major insurers in California and other companies which have been withdrawing from the California market, competition is significantly being affected, and the bill could compound that.

Topics California Agencies Commercial Lines Workers' Compensation Business Insurance