California Commissioner Calls for 15.3 Percent Workers’ Comp Rate Decrease

November 11, 2005

California Insurance Commissioner John Garamendi has recommended a 15.3 percent decrease in the state’s workers’ compensation pure premium rates. This is his fifth consecutive decrease, which will bring the cumulative recommended cuts to 46.2 percent.

In announcing the move, the Commissioner renewed his call for insurers to pass along savings more quickly to employers. He noted while he had called for cumulative decreases of 36.5 percent prior to Thursday, insurance companies had lowered rates by only 26.7 percent.

“This does not compute,” the Commissioner said. “Insurance companies are currently paying just 38.5 cents of every premium dollar they collect for the care of injured workers. It’s obvious that the savings are there — insurers simply need to pass them on.”

Sam Sorich, president of the Association of California Insurance Companies, said the industry loss ratio calculated by the Commissioner “is misleading because it is merely a snapshot in time. It does not consider rate decreases that went into effect July 1 of this year. New rate changes are taking into account the lower costs that recent reforms have achieved.”

The Commissioner did reiterate that the major reforms brought about by AB 227 and SB 228 are working. Those pieces of legislation helped halt what he called an “up-escalator” of rising workers’ compensation costs that were choking businesses and the state’s economy.

“The turnaround provided by this legislation is significant and great news for our state’s economic health,” Garamendi said. “Insurers should recognize that the additional savings now available could be the fuel that injects even more life into our recovering economy.”

Sorich said the rate cuts are continuing to reduce costs to employers. For instance, in July 2003, the average rate paid by employers was $6.50 per $100 of payroll. By January 2005, the rate had dropped to $5.26 per $100 of payroll, he said.

During his announcement, the Commissioner noted that much of the reforms are still being implemented, as well as additional reforms brought about by SB 899. He cautioned that as they are more fully implemented, some changes may result that slow the pace of future decreases in the pure premium rate.

The Commissioner also expressed concern about testimony he has received regarding the savings resulting from changes to the workers’ compensation permanent disability rating schedule. “The decrease in permanent disability ratings from the pre-2005 rating schedule to the new schedule are almost half,” he said. “I urge the legislature and the Governor to quickly reexamine this issue and have corrective action taken if necessary.”

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