ACIC Releases Statement on Workers’ Comp Reforms

December 7, 2004

The following is a statement presented to the Senate Labor and Industrial Relations Committee Dec. 7 on workers’ compensation reforms. The statement by Jeff Fuller, ACIC’s executive vice president and general counsel, reports that California’s workers’ compensation system is on the road to recovery due to a series of effective reforms enacted over the last 14 months:

“California’s workers’ compensation system is on the road to recovery due to a series of effective reforms enacted by the Legislature and governor over the last 14 months.

The reforms not only stabilized a once-turbulent system, they reversed a devastating trend of rate hikes that were suffocating California’s business community.

Workers’ compensation rates today are falling and the future looks even brighter as more insurers enter the California market and the reform package is fully implemented.

Two key elements of this year’s reform law — medical provider networks and the new permanent disability schedule — are just now being put into effect, as specified by the legislation. The disability schedule is still not finalized and won’t go into effect until the first of the year. And, the medical provider networks are awaiting approval by the state. The networks and disability schedule, if allowed to become fully operational, are expected to help drive down costs even more.

Time will determine the actual extent of the reforms’ impact on rates. Time also will determine whether legal challenges by reform critics hinder or completely halt their implementation.

But results from reform provisions already up and running have been positive. The latest indication came last week from the State Compensation Insurance Fund (SCIF), California’s largest workers’ compensation insurer. SCIF announced its rates will drop another 5 percent in January. This is in addition to separate decreases of 2.9 percent and 7 percent already instituted by SCIF. Similar activities are occurring among many private insurers as well.

The insurance commissioner has reported that average rate reductions are at 10 percent, considerably less than the 22.6 percent he has targeted for post-reform decreases. But, his 10 percent figure does not take into account rate changes – such as SCIF’s – that are in the filing process and will not become effective until next month.

It also is important to keep in mind that not all insurance companies are the same. They range from small, California-only companies to national or international insurers. In addition, the types of risk and size of companies they insure vary, all of which causes rates and post-reform reductions to be different from one insurer to another. The impact of the reforms on each insurer is different, just as the impact on each insured business is different. But those differences should not blur the fact that the reforms are achieving the goal of lower insurance rates.

When looking at the overall industry on average, the reforms’ positive impact is clear. The California Workers’ Compensation Institute (CWCI) recently reported that during the first quarter of 2004 rates averaged $5.89 per $100 of payroll, down 8 percent from the all-time high of $6.37 per $100 of payroll charged for policies written in the second half of last year. The CWCI report does not reflect the significant cost savings from this year’s reform law. We are confident that when the data for the last three quarters of 2004 is available, it will show an even greater reduction in the average rates paid by employers.

At the same time, the news media is reporting that additional insurers are entering California’s workers’ compensation market — because of the reforms. More insurers will mean more competition, which in turn will help drive down rates even more.

It is quite apparent that the reforms are working. It’s also apparent that any changes to the reforms, such as strict rate regulation or inhibiting litigation, will harm if not reverse the major strides already made in fixing what was a badly broken workers’ compensation system.”

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