ACIC Comments on Workers’ Comp Rates

August 6, 2004

Sam Sorich, president of the Association of California Insurance Companies (ACIC) issued a statement in response to calls for price controls on workers’ compensation insurance.

“Now is not the time to jeopardize workers’ compensation reforms with state mandated insurance price controls.

“During the past 10 months, the Legislature and governor have enacted major reforms to overhaul California’s badly broken workers’ compensation system. Those reforms, still in their embryonic stages, are nevertheless having an impact already. Rates are declining and the workers’ compensation system, after a decade of turbulence, is finally stabilizing.

“But the reforms must be given more time – perhaps years in some cases – to be fully implemented. For instance, one of the key cost savers involving permanent disability is not even effective until Jan. 1, 2005.

“Imposing insurance rate controls would disrupt the reforms as well as the operation of an open and competitive marketplace – the best way to assure lower rates for insurance customers.

“Rate regulation proponents point to a recent announcement by the Workers’ Compensation Insurance Rating Bureau that it may file a recommended 3.5 percent rate increase for new or renewed policies after Jan. 1, 2005.

“What they fail to point out is that the Rating Bureau’s announcement reflects the bottom line impact of a state mandate ¾ a law enacted in 2002 (AB 749, Calderon-Burton) that resulted in a 24 percent increase in benefits to injured workers. Those increased benefits are one of the reasons workers’ compensation rates had to increase.

“The proponents of rate regulation also fail to point out that even with a 3.5 percent rate increase, the suggested rate will still be 27 percent lower than what it would have been had the recent reforms not been passed.

“The rate prognosis for the future is even better. It would be a mistake to mandate rates based on hypothetical savings before they actually occur. In the past, workers’ compensation reforms that were designed to cut costs actually had the opposite impact.

“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the surprise of many, including the insurance industry, this so-called reform became a cost driver and ultimately was repealed by the Legislature.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 effects of enacted reforms.

“The message in all this is that the reforms enacted into law during the past 10 months are working. Workers’ compensation insurance rates are going down. The workers’ compensation market is becoming more competitive. The potential for even greater savings is real as long as the reforms are given a chance to work and the Legislature avoids the false promise of price controls.

“Price controls didn’t work in Eastern Europe and they won’t work in California.”

The Association of California Insurance Companies (ACIC) is an affiliate of the Property Casualty Insurers Association of America (PCI) and represents more than 300 property/casualty insurance companies doing business in California. ACIC member companies write 39.2 percent of the property/casualty insurance in California, including 53 percent of personal auto insurance, 43 percent of commercial automobile insurance, 35 percent of homeowners insurance, 31 percent of business insurance and 43 percent of the private workers’ compensation insurance. PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association.

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