Calif. Commissioner Comments on Workers’ Comp Pure Premium Rate Hearing

April 25, 2005

The following statement is from California Insurance Commissioner John Garamendi in regards to today’s workers’ compensation pure premium rate hearing:

“The information I received today is very disturbing. Statements from insurance industry representatives, injured workers, and the Workers’ Compensation Insurance Rating Bureau (WCIRB), indicate that there could be serious problems concerning the relationship between the cost of claims and the amount of premiums collected in California.

“I have heard complaints from across this state that injured workers are losing benefits despite the significant savings created by the reforms of 2003, and to a lesser extent, the reforms of 2004. I have also heard from large and small employers who have not seen the reduction in premiums that the reform savings would lead one to expect.

“This raises two questions: 1) Are injured workers receiving the benefits that they are entitled to, or are they suffering unjustly as a result of denied treatment and benefits? 2) Why isn’t the industry sharing savings from workers’ compensation reform with employers?

“In 1999 the loss ratio (the amount of premium that goes toward the payment of treatment and benefits for injured workers) was 141 percent of the premium collected. In 2000 that figure dropped to 126 percent of premiums. The ensuing years showed that the loss ratio fell to 110 percent of premiums, then to 89 percent of premiums, to 60 percent of premiums, and finally to a point at which just 45 percent of the premium dollar is going to the care of injured workers. Clearly, the cost of claims compared to the premium levels charged in California is out of whack.

“I will examine the policies of workers’ compensation insurance companies with regard to the handling of claims in consideration of the new laws. If these policies are not in line with the guidelines set by law, we will take action to ensure that the guidelines are adhered to more closely.

“I will also examine why the significant savings from the reforms are not translating into lower rates for employers. I can find no reason why the amount of premium collected in 2004 rose by 11 percent while the cost of claims fell by 15 oercent.

“Finally, and most importantly, I will examine State Compensation Insurance Fund. This state-owned, state-controlled entity holds more than 50 percent of the workers’ compensation market in California, and undoubtedly is a market leader. If it implements the reforms properly and passes on the savings, it would encourage competition as no other carrier could.

“I will reconvene this hearing on May 19 to gather more information to help me determine what my pure premium rate recommendation will be. In the past my recommendation has been more aggressive than the WCIRB recommendation, which this year amounts to 10.4 percent. If insurers had followed my previous recommendations, it is clear that they still could have enjoyed a healthy profit.”

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