AIA Working Toward Rate Adequacy and Competition to Balance Calif. Workers’ Comp System

April 29, 2002

Testifying before the Assembly Insurance Committee April 24, the American Insurance Association (AIA) agreed to continue an open dialogue with California Insurance Commissioner Harry Low to help develop a standard for rate adequacy that will not hinder competition in the marketplace. AIA’s commitment was made during testimony in opposition to AB 1985, a measure designed to give the insurance commissioner the authority to deny inadequate workers’ compensation rates.

“Competition is the best regulator of rates,” Mark Webb, AIA vice president, western region, remarked. “Initially, this bill appeared to turn the clock back to 1993 when California operated under a minimum-rate law that prevented insurers from selling their policies below an industry-wide minimum rate. AIA has concerns about this measure. However, we will continue to work with the commissioner on a standard of rate adequacy that will not hurt competition in the marketplace.

“Commissioner Low’s testimony before the committee demonstrates his intention to preserve competition, not prevent it,” Webb added. “We will work with the proponents of AB 1985 to craft amendments that will serve the dual purpose of promoting competition and protecting insurer solvency.”

AB 1985 is intended to provide the insurance commissioner with the authority to deny inadequate rates. Rates must cover loss experience.

Current law provides the Department of Insurance with a variety of tools to manage the solvency of carriers. These tools include risk-based capital requirements, authority to increase aggregate reserves as needed, authority to demand additional accounting or actuarial information about a company’s financial condition whenever the commissioner deems it necessary, and authority to make an insurer stop any conduct that could put insurer solvency at risk.

“We also support the clarification in this measure which requires the California State Fund to meet the same standards as private carriers, including compliance with risk-based capital requirements,” Webb commented. “This bill is still a work in progress, but negotiations are moving in the right direction.”

AB 1985 is authored by Assemblyman Tom Calderon (D-Montebello).

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