Calif. Commissioner’s Revision to WC Advisory Rate Excessive, Premature, Says ACIC

November 10, 2003

California Insurance Commissioner John Garamendi’s recommendation for a 14.9 percent decrease in pure premium rates for workers’ compensation insurance is both excessive and premature, according to the Association of California Insurance Companies (ACIC).

Earlier this week, the Workers’ Compensation Insurance Rating Bureau, charged with recommending workers’ compensation rates to state regulators, proposed a reduction of pure premium rates insurers charge of between 2.9 to 5.3 percent.

“The ACIC is disappointed in the commissioner’s decision to recommend a decrease in the workers’ compensation rate that is far beyond the rating bureau’s recommendation,” said ACIC President Sam Sorich. “We are concerned that the commissioner’s decision to go beyond the rating bureau’s projections will create further confusion in the market and could discourage insurers from entering the California market.”

In addition, Sorich said, the rating bureau took an almost unprecedented step in trying to quantify savings from reform provisions signed into law this year that are somewhat unclear, and when it is not yet known how the provisions will be interpreted and implemented.

“This was a major leap of faith on the part of the rating bureau to try to quantify what are essentially unknowns,” Sorich said. “It will take considerable time for the bills’ cost savings to be achieved. The degree to which the potential cost savings will be realized remains to be seen. Changes to the system must be administered properly to realize the potential cost savings.”

The commissioner’s ruling puts forward an advisory rate. Insurers are not obligated to follow the advisory.

Gov. Gray Davis signed a package of workers’ compensation reform bills passed by the Legislature at the close of this year’s session. The bills-SB 228, SB 1007, AB 227, AB 1099, AB 1267 and AB 1557-are aimed at cutting workers’ compensation costs.

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