By Daniel Hays

Increased competition and pressure from California's insurancecommissioner will probably erode profits in the state's workers'compensation insurance sector, a leading research firm warned lastweek.

The forecast from Bank of America Securities Equity Researchfollowed Commissioner John Garamendi's remarks that he willinvestigate carriers' handling of workers' comp claims at a May 19hearing. In light of that competition and pressure from Mr.Garamendi, “California workers' comp insurance is likely to becomeless attractive and profitability will likely erode,” the analystswrote.

Groups representing employees have been complaining that a newdisability schedule improperly reduces benefits. (See related storyon page 32.)

Mr. Garamendi said he had listened to complaints from across thestate that injured workers were losing benefits even as insurerswere reaping large profits in the wake of legislative reforms. Hesaid employers large and small told him that they have not seen thereduction in premiums that reform savings would lead one toexpect.

Mr. Garamendi said this leads him to ask whether injured workersare receiving the benefits they are entitled to, whether they arebeing unjustly denied treatment, and why insurers aren't sharingsavings from reforms with employers?

The amount of carrier premium that goes to pay for injuredworker treatment and benefits, measured by their loss ratio, hasdropped to 45 percent of the premium dollar, noted Mr. Garamendi.He promised that if claims are not handled properly under the newlaws, “we will take action to ensure that the guidelines areadhered to more closely.”

A representative for the commissioner, Norman D. Williams, saidMr. Garamendi could invoke Insurance Code Section 90.3, whichregulates the state's market conduct bureau and covers a range ofprohibited acts, such as misrepresenting terms of a policy by“telling people they don't have rights to benefits when theydo.”

Mr. Garamendi also promised to look into why workers' comppremium amounts rose 11 percent while the cost of claims fell 15percent. He said he would also investigate the State CompensationInsurance Fund–the state-owned entity that insures 50 percent ofthe market–to see if it is passing on savings properly.

Banc of America said that SCIF had a 95.7 combined ratio lastyear and is a major competitor to the private sector.