ACIC Opposes Rate Regulation Bill

June 22, 2004

The Association of California Insurance Companies (ACIC) is opposed to legislation that would establish a mandated rate regulation system for workers’ compensation insurance companies.

“The bill would force insurers to take another gamble in California by presuming cost savings that may not exist,” said ACIC President Sam Sorich.

The bill, ABX4 No. 16 by Assemblyman Lloyd E. Levine (D-Van Nuys), would give the insurance commissioner the ability to disapprove rates set by carriers if those rates do not reflect the Department of Insurance’s estimate of savings from recently enacted workers’ compensation reforms. The bill is scheduled to be heard in the Senate Labor and Industrial Relations Committee on Wednesday, June 23.

For a variety of reasons, Sorich noted that the California workers’ compensation insurance market has been in a state of crisis for several years. Many of the problems were unforeseen.

During the reform effort of 1993, for example, it was thought that giving the treating physician’s medical opinion a presumption of correctness would save money and time by removing an issue that previously was subject to costly litigation.

“To the surprise of many, including the insurance industry, this so-called reform became a cost driver and ultimately was repealed by the Legislature. This is only one of many examples where the state misjudged the impact of their reforms,” Sorich said.

He added that there is a chance of this happening again as the legislative changes in the past two years were even more far reaching than reforms in the past.

“While we appreciate the reforms that have been debated and enacted, insurers must be given time to see how those reforms affect actual costs experienced by carriers. ABX4 No. 16 treats assumptions made by the commissioner as correct even though history indicates that they frequently are not correct,” Sorich said.

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