Insurers Oppose Proposed Calif. Workers’ Comp Deductible

Some California insurers are asking the Legislature to reconsider a proposal that they say will boost workers’ compensation temporary disability payments to injured workers dramatically.

The American Insurance Association (AIA) submitted comments to the California Department of Insurance (CDI) on August 8, opposing Assembly Bill 338 related to large deductible workers’ compensation policies, saying the proposal threatens to harm the marketplace and is unnecessary. Suhr Risk Services of California estimates that the law would increase payments by more than $100 million annually statewide.

“No other state in the union has found it necessary to regulate in this heavy-handed manner,” said Steve Suchil, AIA assistant vice president for state affairs. “This proposal will restrict the flexibility of employers and insurers to enter into deductible arrangements. The result will be higher costs for deductible policies which will make this option of coverage less attractive to employers. In the end, if fewer businesses use large deductible policies and decide to self insure the State of California will earn less premium tax income.”

Suhr Risk Services said the bill by Assembly Insurance Committee Chair Joe Coto, D-San Jose, attempts to address public and press concerns that many temporary disabled workers have run out of disability benefits before recovering and returning to work. Workers’ compensation reforms enacted in 2004 limited temporary partial and total disability payments to 104 weeks following the first disability payment. There are nine categories of exemptions to the two-year cap, allowing payments to some workers for up to five years after the first payment. AB 338 proposes to increase the cap another year to 156 compensable weeks and would change the clock start time from the date of first payment to the date of injury.

John Suhr, Suhr Risk Services partner, said, “The evidence clearly shows that AB 338 would go a long way toward unraveling the hard-won gains the Legislature achieved in 2004.”

“Insurers have successfully offered large deductible policies for 13 years without over-reaching regulation,” Suchil added. “CDI’s proposed regulations will micro-manage routine business transactions that occur between sophisticated sellers and purchasers of workers’ compensation insurance. Currently the National Association of Insurance Commissioners (NAIC) Reinsurance Task Force is working on a proposal that would reduce collateral requirements for alien reinsurers. It does not seem fair to increase the already substantial security deposits required of licensed and regulated U.S. insurance companies, while at the same time the CDI is working with the NAIC to reduce collateral requirements for unlicensed, non-U.S. reinsurers.”

Suhr noted that a study by the California Workers’ Compensation Institute tracking disability payouts under the two-year cap, the five-year cap and total payout found that the three-year cap would increase the total amount of temporary disability paid for accident year claims by 11 percent, from $1.06 billion to $1.194 billion.

He said the Legislature’s reliance on “apocryphal information to set public policy is not a proper approach, especially when it brings about such monumental financial iimpacts on the workers’ compensation system”

Sources: AIA, Suhr Risk Services