Garamendi Drops Workers’ Comp Advisory Pure Premium Rate 14.9 Percent

In an effort to provide relief to skyrocketing workers’ compensation premiums in California, Insurance Commissioner John Garamendi lowered the advisory pure premium rate by 14.9 percent, a shift that would return premiums to July 2002 levels.

The announcement comes on the heels of the Workers’ Compensation Insurance Rating Bureau (WCIRB) updated evaluation of the impact that recently passed workers’ comp legislation will have on the 2004 pure premium rate level. On Nov. 3, the WCIRB announced that its evaluation now indicates a change in pure premium rates between -2.9 percent to -5.3 percent.

Speaking at a luncheon for the California Coalition on Workers’ Compensation in Los Angeles, Garamendi said the savings from the reforms that are reflected in his pure premium order would not occur unless recent reform legislation is fully enacted. Garamendi told the audience that the WCIRB ignored the potential impact of the new legislation in their initial evaluation in September, adding that the rating Board is dominated by the insurance industry. He went on to say that “The fact is it [legislation] was of great value.”

Although insurers use his advisory rate as a benchmark, the Commissioner does not have the power to set the rates charged to employers. However, the reform legislation includes a provision that requires insurers to file rates that reflect the savings that the Commissioner determines are due to the reforms.

“I’ll see that the industry pays attention,” Garamendi said. He also said that if the State Compensation Insurance Fund (SCIF) and other insurers fail to fully implement the law, savings would not be passed on to small businesses. “I’m going to hold them responsible.”

Beginning in Jan. 2004, the reform legislation requires insurers to train claims adjusters to comply with new treatment guidelines, and by April insurers should pay medical providers based on the same guidelines.

According to Jim Zelinski, spokesperson for SCIF, implementation is already underway. “We’re implementing every aspect of the reform legislation,” he said. “A special committee has been set up to review.”

In addition, Garamendi commented that without changing the cost-drivers—fraud, administrative inefficiencies, and litigation—workers’ comp premiums would continue to increase. “We’re going after fraud and we’re going to bust some big ones,” he said. According to reports, fraud accounts for $1 million to $3 billion in added cost to the workers’ comp system each year.

After taking office in January, Garamendi signed an advisory pure premium increase of 7.2 percent that became effective on July 1. This change followed a previous 10.5 percent increase that went into effect six months prior. Garamendi’s decision to lower advisory rates will eliminate these increases.

Garamendi also stated that there is a critical need to enact cleanup legislation to deal with ambiguities and technical errors in the new law. He said the cleanup is essential for the new legislation to be carried out effectively, and to eliminate potential litigation. Gov. Arnold Schwarzenegger has indicted that he will call a special session in 2004, where Garamendi plans to address the cleanup.

“As I said, there are very significant savings within this legislation that can be passed on to businesses,” Garamendi said. “It is now up to all who are involved to fully enact this new law so that our employers will see some relief.”