AIA: Insurers Lowering Rates, Price Controls Damage California Workers’ Comp System

June 29, 2005

California’s workers’ compensation insurers have been filing historic rate decreases with the Department of Insurance, demonstrating that the 2003-2004 reforms are working, according to the American Insurance Association (AIA).

A bill (SB 46) authored by Senator Richard Alarcon (D-Sylmar), which would re-regulate workers’ comp rates, will reportedly stifle California’s increasingly competitive market just as it is beginning to rebound.

“SB 46 is an irresponsible and unwarranted measure that completely ignores what is actually happening in California’s marketplace. A conservative estimate shows that insurers have reduced workers’ compensation rates more than 30 percent, on average, since July 2003,” said Ken Gibson, AIA vice president, Western Region. “Insurers have implemented four rate decreases in a row. The Insurance Department’s Web site shows that insurers are filing major decreases ranging from -13.8 percent to -26.1 percent for July renewals. Two years ago decreases like this were unimaginable. The reforms are working to control costs, and return predictability, stability and objectivity back to California’s system.”

“Insurers that have weathered the storms of California’s difficult market are reconfirming their commitment to do business in this state. These insurers with an aging book of business are still experiencing higher costs on older claims, so they must put more into reserves to pay future claims,” explained Gibson. “New entrants into this market and companies that have been waiting to see how the reforms were implemented now see how well the reforms are working and they are lowering rates and expanding market share.”

“The goal of the reforms was to restore health to a very sick system,” said Gibson. “These rate decreases are evidence that California is reaching its goal. Despite litigation efforts by labor and applicants’ attorneys to undermine the reforms, employers are finally seeing the benefits now that the regulations have been developed and implemented. Instituting government price controls will result in distorted and dysfunctional markets, restricted flow of capital in this state and fewer choices for employers. Although we cannot (and do not) predict what may or may not happen in any specific marketplace, experience has proven time and again that political pricing does not work – and open markets do.”

“The 2004 reform legislation mandated a study of the California workers’ compensation market, which is due to be submitted to the governor and the insurance commissioner in January. The reforms should be allowed to work and time should be given for an objective analysis of how the reforms have impacted the marketplace,” concluded Gibson.

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