ACIC Responds to Calif. Commissioner’s WC Conference

Sam Sorich, president of the Association of California Insurance Companies, issued a response to California Insurance Commissioner John Garamendi’s news conference this week regarding workers’ compensation coverage.

“Although not fully implemented, reforms enacted over the past two years to overhaul California’s workers compensation system are posting positive results for California’s business community.

“Rates are steadily dropping and insurers are returning to the California marketplace – both positive developments for a system that was described as badly broken just 24 months ago.

“We currently are in a transition period. Prior to the reforms, the combined average loss ratio (claims and administrative costs) hit a peak in 1999 of 184 percent. That means that for every premium dollar received during that year by insurers, they paid out $1.84.

“The pendulum now is swinging the other way with substantial changes in the loss ratios, according to figures just released by the Workers’ Compensation Insurance Rating Bureau. Ultimately, the reforms – as they are fully implemented over time – will continue to stabilize the system and restore balance.

“Meanwhile, rates continue to drop. The Rating Bureau is recommending yet another 5.2 percent reduction on Jan. 1, 2006. Continuing the downward trend in rates, this comes on the heels of double digit decreases recommended by the commissioner and Rating Bureau earlier this year.

“Another strong indicator of the post-reform changes is the relationship between workers compensation premiums and payroll. In the last half of 2003, employers were paying a high of $6.36 per $100 of payroll. From January through March of this year, the rate was $5.21 per $100 of payroll – a substantial decrease.

“It is important to keep in mind that regulations implementing key elements of the reforms are still being finalized for medical provider networks, utilization reviews and the disability rating schedule.

“At the same time, it is uncertain how the reform provisions will be interpreted and implemented by workers compensation judges. Pending litigation challenging key segments of the reforms is also casting doubt over the eventual outcome of the reforms.

“But despite these uncertainties, the reforms are progressing and results for California businesses are expected to improve with time as the final pieces of the reforms are implemented.”