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April 28, 2005
CA Workers' Comp System Still 'Out of Whack'
California employers were hoping that legislation adopted a few years ago would ease workers' compensation costs. In 2004, dramatic savings were achieved--but by insurers, who largely failed to pass them on.

Insurance Commissioner John Garamendi held a public hearing on the matter Monday in San Francisco, saying afterward that he had "heard from large and small employers who have not seen the reduction in premiums that the reform savings would lead one to expect."

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California overhauled its workers' comp system with two laws passed at the end Gray Davis' tenure as governor and another--containing the biggest changes--signed into law a year ago by Gov. Arnold Schwarzenegger, according to the Los Angeles Times.

For every dollar they received in premiums last year, workers' comp insurers paid out 45 cents in medical treatments and disability benefits for injured workers, according to figures released by Garamendi. That was down from loss ratios of 60 cents in 2003 and 89 cents in 2002.

"Clearly, the cost of claims compared to the premium levels charged in California is out of whack," Garamendi said. He pledged to investigate several aspects of the system, including "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 percent."

Most important, he said, will be an examination of the 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," he said. "If it implements the reforms properly and passes on the savings, it would encourage competition as no other carrier could."

The California Workers' Compensation Rating Bureau, which issues nonbinding guidance on pricing for insurers, calculates that premiums paid by the state's employers are falling slowly, according to the Times.

And the head of an insurance industry trade group, the Association of California Insurance Companies, said progress was being made in cutting premiums.

"We're in a period of adjustment," Sam Sorich, president of the association, said. "The insurance industry is quickly adjusting to better information out there and making appropriate decreases."

The Times also reports, however, that unions are seeking legislation that would re-regulate workers' comp carriers by slapping price caps on policies.


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