Calif. Commissioner Unveils Workers’ Comp Rate Proposal to Ensure Savings Reach Employers

California Insurance Commissioner John Garamendi made the following statement regarding his issuance of a rate proposal to ensure that workers’ compensation reform savings are passed on to employers:

“During the effort to address the crisis of workers’ compensation in California, I have remained steadfast in my commitment to increase competition in the marketplace. Only by expanding the presence of private insurers can we fundamentally right the serious problems of this system, particularly as they pertain to the State Compensation Insurance Fund and its 60 percent share of the market.

“In recent weeks, as system reform negotiations have continued, I have heard a growing cry for a mechanism to ensure that available savings will be passed on to employers. While some lawmakers have suggested that a full rate regulation scheme is the answer, I believe that there is a better approach that more effectively addresses the needs of employers, while not unduly discouraging insurers from expanding or entering the market.

“Therefore, as requested by the Legislature, my Department has developed a proposal that will deliver the savings and, just as importantly, level the playing field for all insurers, including the State Fund.

“My proposal sets a mandatory base rate annually that reflects the actual cost of claims, including the reform savings. Insurance companies will use this rate in conjunction with their July 1, 2003 rating plans to set their yearly rates during the three-year period beginning July 1, 2004 and ending July 1, 2007. Failure to pass through available savings to employers will constitute an Unfair Practice under the Insurance Code.

“As I have said before, market stabilization and increased competition are keys to solving this crisis. This proposal passes through the savings to employers immediately without imposing a cumbersome, long-term rate regulation system. We have until March 31 to pass Legislative reform that will benefit employers this year. If no reform is passed by then, the earliest that savings could materialize is July of 2005. I urge all involved to reach a compromise now for the benefit of our employers and the entire state’s economy.”