California Insurance Commissioner John Garamendi on yesterdaycalled on workers' compensation insurers to pass on savingsprovided by legislative reforms to policyholders, recommending an18 percent reduction in the pure premium rate.

Changes enacted by the legislature over the past few years havebegun to work, according to the commissioner. "California'sworkers' compensation system costs are no longer on the upescalator, and the cost of claims is on the down elevator in arapid descent," he said.

Mr. Garamendi said he had based his recommendation on anassessment of the workers' compensation system based on hearings heheld, "as well as extensive actuarial analysis of the costs of thesystem."

The 18 percent reduction he has called for would affect policiesbeginning on or after July 1. According to the commissioner, thatfigure combined with earlier premium recommendations he has madecomes to a total reduction of 36.5 percent since reforms wereenacted in the state in 2003.

"This, by any measure, is a remarkable turnaround for a systemthat was without question broken just a few short years ago," hesaid.

In making his recommendation, however, the commissionercriticized insurers and the state Workers' Compensation InsuranceReview Board (WCIRB) for not keeping rates in line with the changesin costs they have experienced.

"Many insurers have been slow to fully implement my recommendedreductions and pass on the savings as rapidly as possible," hesaid. "It is past time for the savings from reforms to be passedalong to overburdened employers and injured workers."

Insurers have argued that much of the decreases in costs thecommissioner has based his recommendations on are still projecteddecreases, and that the industry is still recovering form a decadein the red.

Nicole Mahrt, a spokesperson for the American InsuranceAssociation in Sacramento, said that Mr. Garamendi has, "estimatedsavings earlier than they actually occurred."

Additionally, she said, the workers' compensation market is"still in an environment of uncertainty," noting that lawsuitschallenging the reforms enacted last year are still in process,with the most recent suit against the new permanent partialdisability ratings filed just last week in California State SupremeCourt.

Mr. Garamendi argued, however, that cost reductions havematerialized.

"We now know, without speculation, that the reforms are workingeffectively, that costs are dropping, and that insurers arerealizing savings," he said.

In addition to the commissioner, the WCIRB also makes a purepremium recommendation, and has also recommended rate reductions inthe past. Mr. Garamendi criticized the board, however, for beingtoo close to the insurance industry and to slow to recommend ratereductions.

"The Workers' Compensation Insurance Rating Bureau, anorganization comprised of industry representatives that is chargedwith projecting future costs, has consistently recommendedreductions to the pure premium rate that have not kept pace withthe actual decrease in claims costs," he said.

Ms. Mahrt countered that while insurance representatives are apart of the WCIRB, there are also members representing the public,labor, and the applicants' attorneys that represent injuredworkers.
"The industry is required to report data to the bureau, but it doesnot control it at all," she said.

Sam Sorich, president of the Association of California InsuranceCompanies, the Sacramento-based western affiliate of the PropertyCasualty Insurers Association of America (PCI), defended thebureau's recommendations.

"The rating bureau recently recommended another 13.8 percentdecrease in rates, effective next month. This recommendation issound and reflects, through actuarial evidence, the best availableestimate of the reforms' impact so far," he said.

"At this point, we are not certain how the commissioner hasreached the mathematical conclusions that resulted in his raterecommendation." Mr. Sorich added, however, that the ACIC would be"reviewing" the commissioner's analysis.

Pure premium rate recommendations are advisory, and insurancecompanies are under no obligation to follow them. Ms. Mahrt notedthat some companies will reduce rates further, and others willoffer smaller reductions based on their books of business.

"They have to make sound, actuarially based decisions," shesaid. "They have to make decisions based on facts. They can't usepolitically motivated, illusory numbers."