On July 1, 2003, Mr. Garamendi issued a recommendation for a 7.2 percent pure premium increase.

He said when he made that recommendation "medical costs within the system were out of control, employers faced double-digit premium increases, and injured workers were struggling to get the care to which they were entitled. In short, the system was broken."

Fixing the workers' comp system, he added, became a major priority, and with a joint effort from state lawmakers several major reforms have been passed. As a result, Mr. Garamendi said he was recommending the 2.2 percent decrease rather than the 3.5 percent increase recommended by the state Workers' Compensation Insurance Review Board.

The pure premium rate is only advisory in nature, and insurers are not required to follow it in filing their rates, although that is typically the case.

Nicole Mahrt, a spokesperson for the American Insurance Association in Sacramento, said Mr. Garamendi's recommendation was a "reasonable" one, although she noted that the WCIRB made its call for a slight increase to account for some of the benefit increases that were mandated in a 2002 law. Those benefit increases have been phased in, with the final round scheduled to be implemented with the new year.

The role of the 2002 benefit increases was also noted by Sam Sorich, president of the Association of California Insurance Companies, which is the Western regional arm of the Property Casualty Insurers Association of America.

Mr. Sorich said the WCIRB recommendation was based on a "sound analysis" of the effects of the next round of benefit increases and that the ACIC was "disappointed" that Mr. Garamendi did not choose to follow it.

Much of the difference of opinion regarding workers' compensation rates can be traced to the most recent reform package, which was passed last spring and was known as S.B. 899. The reforms were passed amidst much fanfare and promises of drastic reductions in the costs of workers' comp coverage. Those reductions have not yet been realized, Mr. Garamendi noted, giving rise to criticism and calls for more drastic action.

Mr. Garamendi said, "There is a growing concern that insurers have not passed along all of the potential savings to employers in the form of reduced premiums." He said there is evidence showing that rates have declined only slightly more than 10 percent while the recommendation has been reduced by 22 percent since July of 2003.

"Consequently," said Mr. Garamendi, "there is a mounting call for the enactment of rate regulation to pass on the savings fully. While I do not support such a proposal, it is clear that unless the savings are given to employers soon something will be done to require insurers to do so."

However, Mr. Sorich noted that much of the reforms enacted in S.B. 899 have not yet been fully implemented. In fact, he noted that the regulations to implement those reforms have not been finalized.

Speculating on the savings new rules could provide "doesn't seem to be a wise thing to do." Those regulations are in the process of being finalized and have already drawn criticism. One section that has been completed requiring workers to use employer network doctors has sparked a lawsuit by workers' compensation attorneys.

Ms. Mahrt also advised caution in dealing with the workers' compensation market, saying that now is a "critical time" in the implementation S.B. 899 and the full effects will likely not be seen until well into 2005.

However, Ms. Mahrt noted that there are encouraging signs already being seen in the California workers' compensation market. "Competition is moving in," she said, adding that existing carriers are also considering expanding their capacity. "People are seeing a real sea change."