Calif. Commissioner Says Insurers Could Live with Some Rate Regulation

By | March 18, 2004

Calif. Insurance Commissioner John Garamendi, in an apparent change in direction, said recently that California could regulate workers’ compensation insurance rates in a way that wouldn’t discourage insurers from doing business in the state.

In a conference call with reporters from New York, where he’s attending a national meeting of insurance commissioners, Garamendi said some regulations on insurance rates “would impede the expansion of the private market.”

But some states, Garamendi said, regulate “excessive or inadequate” rates “in a way that these companies have lived and prospered. … We know who those states are (and) we are doing analyses and trying to sort out what is feasible.”

Unlike auto and homeowners’ insurance premiums, workers’ comp rates aren’t regulated by the state, although Garamendi recommends rates to cover the cost of compensating and treating work-related injuries.

A minimum-rate law that limited how low workers’ comp companies could price their insurance was scraped in the mid-1990s, triggering a rate war that drove many companies into insolvency or out of the California market.

Some critics see that drop in competition as one of the main reasons for the steep jump in workers’ comp insurance costs that have hit employers in the last few years and triggered demands for legislation to limit the cost of treating injured workers.

Garamendi has been warning lawakers against giving him the power to bar excessive workers’ comp rates, saying it could discourage insurers from re-entering the California market or expanding their operations here.

But he said Monday there were “some very strong moves afoot (in the Legislature) to institute some form of rate regulation” as part of legislation to curb workers’ comp costs and that regulation could be structured in a way that insurers could live with.

Democratic lawmakers contend there’s no way to ensure that insurance companies will pass on to employers savings generated by cost-cutting legislation unless the insurance commissioner can bar excessively high premiums.

Garamendi conducted the conference call to announce that he had met with representatives of four of the top workers’ comp companies doing business in the state and said they were “very serious” about expanding their share of the California market.

He said the companies — St. Paul, Travelers, AIG and Everest National Insurance Co. — wanted to see reforms that would make it easier for them to predict their costs and that would create a “level playing field” with the State Compensation Insurance Fund, a quasi-governmental entity that has the majority of the California workers’ comp insurance market.

“They want to have State Fund operate in a sound business manner, price its product appropriately, not undercutting the market, offering prices that are ridiculously low,” Garamendi said.

Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Topics Carriers California Legislation Workers' Compensation

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