AIA: California Work Comp Reforms Produce Average 26 Percent Rate Shift

July 7, 2004

The American Insurance Association announced that recently enacted reform legislation passed in 2003 and this past spring has prompted a 26 percent swing in average workers’ compensation rates.

Conducted by AIA, a survey comparing 190 mid-term pure premium rate adjustments filed by insurers, as of July 1, 2004, with rate filings made for policies starting or renewing on or after July 1, 2003, shows that, on average, rates decreased 13.9 percent during this 12-month period. In contrast, in July 2003, the Workers’ Compensation Insurance Rating Bureau (WCIRB) had advised Insurance Commissioner John Garamendi to increase the average pure premium rates by 12 percent for policies, effective January 1, 2004. In other words, there has been a swing in rates, on average, of 26 percent.

“Because three reform measures have become law since September 2003, we are starting to turn the corner on escalating system costs. These reforms are bringing stability and predictability to California’s workers’ compensation system,” said Ken Gibson, AIA vice president, western region. “Just a year ago, the WCIRB recommended a 12 percent rate increase. In the span of only nine months, insurers have actually decreased rates an average of almost 14 percent.”

“The good news is that both Insurance Commissioner Garamendi and the WCIRB expect additional cost savings once all aspects of the reform legislation are implemented,” Gibson said. “In order for these projected savings to become realities, it is critical that Commissioner Garamendi and policymakers use their influence to ensure that the implementation process stays on track and that the reforms are implemented as they were intended and not sabotaged by loopholes devised by applicants’ attorneys and other providers.”

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