AIA: SB 899 Makes a Difference to Work Comp System

April 20, 2005

April 19 marks the anniversary of the signing of SB 899, the third of three significant workers’ compensation reform measures enacted during the past few years by California’s elected officials. Together, these measures are reforming the Golden State’s workers’ comp system, changing a litigious, abuse-ridden environment into a healthy, predictable system, the American Insurance Association said.

“California’s workers’ compensation market is changing from the most litigious, unpredictable and subjective system in the country to a market which will benefit the state’s employers and their workers,” said Ken Gibson, AIA vice president, western region. “We must remember where we came from as we look forward. In July 2003, California’s system was out-of-control. Employers were suffering under double-digit premium increases and injured workers were plagued by inconsistent rules in an inefficient, complex system. Medical and indemnity costs had exploded in California, growing from $9 billion to $20 billion.

“Insurers faced a decade of red ink in the California workers’ compensation market, resulting in multiple insolvencies. At its worst, insurers paid $1.85 in claims losses for every dollar collected in premium,” Gibson explained. “The good news is that all signs indicate that the reform effort is substantially reducing costs, decreasing inefficiencies and attacking abuse in the system. We are finally on the right track. The Workers’ Compensation Insurance Rating Bureau and Insurance Commissioner John Garamendi (D) are considering the fourth rate decrease since the first reforms were signed in 2003, and more savings are expected.

“New carriers are entering the market, and insurers that stopped writing are taking a second look at California,” Gibson said. “Insurers need predictability, stability and the opportunity to compete. Competition, not government price controls, will give employers the choices they want. Employers renewing in July will find a healthier, more competitive market which will provide them with choices they have not had in years.

“Governors Arnold Schwarzenegger (R) and Gray Davis (D) and the entire California legislature should be applauded for rolling up their sleeves and making the tough choices to reform a failing system. That hard work is paying off,” Gibson said. “Now we must stay the course and let the reforms take effect. The major components of last year’s SB 899, including the medical provider networks and permanent partial disability fee schedule, have only been in effect for 90 days. Policymakers must give these measures time to work. Litigation and artificial pricing schemes will only derail the positive results we are seeing.”

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