By Matt Brady
California workers' compensation insurers have only been passing along about two-thirds of the cost-savings they've seen from reforms to the system in recent years, according to Insurance Commissioner John Garamendi, who called for further rate cuts.
Data collected by the California insurance department, he said, shows that the costs of claims have fallen by about 36.5 percent since the first legislative reforms were enacted under Gov. Gray Davis in 2003. "The overall result of those reforms is a plunge–not a fall, not a dramatic decrease, but a plunge in the costs of workers' compensation claims," said Mr. Garamendi.
Yet insurers have lagged in passing along those savings, reducing rates by a cumulative 26.78 percent in that time, he added. "There's more relief possible for employers," said Mr. Garamendi. "We should, in the months ahead, see better and lower prices in the state of California."
Different insurers have passed along different levels of savings, the commissioner noted, with some passing roughly 40 percent or less and others passing 100 percent or more on to policyholders. The commissioner noted that there could be different reasons for companies not passing along the bulk of savings, depending on where they stood in pricing terms before the reforms were introduced, the financial status of the company and other factors.
As an example, he noted that the State Fund–California's non-profit workers' comp provider–did not pass along the entirety of its savings in order to rebuild its reserves.
Those reserves are expected to reach adequate levels in the very near future, if they haven't already, meaning that the State Fund soon will be able to further reduce its rates, according to Mr. Garamendi. He said this would play an important role in driving the rest of the market's rates down, as he noted that companies often price "around the State Fund."
Looking forward, he said he would like to see the State Fund's market share–currently at a little over 50 percent–decline to "historic levels" in the 20 percent range.
Sam Sorich, president of the Association of California Insurance Companies, noted that prior to reforms, the costs for insurers peaked in 1999 at approximately $1.84 paid out for every $1 of premium collected.
"The pendulum now is swinging the other way with substantial changes in loss ratios, according to figures just released by the Workers' Compensation Insurance Rating Bureau," he said. "Ultimately, the reforms–as they are fully implemented over time–will continue to stabilize the system and restore balance."
However, he noted, several issues are unresolved. "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," he said.
"At the same time," he continued, "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."
California Commissioner John Garamendi says reform laws have prompted claim costs to "plunge" since 2003.
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