Tuesday, August 09, 2005

Report: Workers' comp rates down - 26.8 percent since a new wave of reforms was enacted

East Bay Business Times - August 8, 2005


East Bay Business Times - 3:03 PM PDT Monday

Report: Workers' comp rates down

Workers' compensation insurers in California filed for an average premium reduction of 14.6 percent for policies taking effect on or after July 1, 2005, bringing the total rate reduction to an average of 26.8 percent since a new wave of reforms was enacted, state Insurance Commissioner John Garamendi said Monday.

"Employers have received some much needed relief," Garamendi said in statement. "But it hasn't come fast enough, and it doesn't reflect the tremendous savings to insurers from the reforms."

Individual rate reductions filed by the 25 largest workers' comp insurers in California for July and after ranged from no cut at all -- by both State Farm Fire and Casualty Co. and Sentry Insurance Group, each with less than 1 percent of the market -- to 23.7 percent by American Financial Group, which has about 2 percent.

The quasi-public State Compensation Insurance Fund filed a 14 percent rate reduction for July 2005 and after, and 26.2 percent cumulatively. The one-time insurer of last resort now insures more than 51 percent of the market.

Spiking workers' comp rates became a major problem for California businesses, with some shutting down because they said they couldn't afford the mandatory coverage to provide treatment for workers injured on the job. A series of reform measures enacted in 2003 and 2004 were supposed to cut more than $5 billion in costs from the system, though some critics have said they eliminate needed care or make it much harder for workers to get.

Garamendi said that state research indicates that workers' comp insurer loss ratios have shown an "unprecedented" decline, from 87 percent of premium paid for losses in 2002 to 41 percent in 2005, but that not all of the savings is being passed along to the businesses that buy the insurance. Analysis of cost modifiers and other aspects of pricing showed that roughly one-third of the cost savings have not been passed along to employers.

Garamendi has called for a total of 36.5 percent in reductions to the pure premium rate for workers' comp, and the Workers' Compensation Insurance Rating Bureau has recommended an additional 5.2 percent reduction to take effect Jan. 1, 2006.

"The plummeting cost of claims has clearly benefited insurance companies," said Garamendi. "Now, California's small businesses deserve immediate, mid-term premium reductions from their insurance carriers. They shouldn't have to wait until they renew their policies."

The Association of California Insurance Companies, in a statement, noted that the reforms have not been fully implemented and that legal challenges to the reforms are pending. "We currently are in a transition period."

The association also noted that the loss ratio in 2002 was far from the worst the industry saw. "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 ... Ultimately, the reforms -- as they are fully implemented over time -- will continue to stabilize the system and restore balance."

© 2005 American City Business Journals Inc.

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