By Matt Brady

California workers' compensation insurers have only been passingalong about two-thirds of the cost-savings they've seen fromreforms to the system in recent years, according to InsuranceCommissioner 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 percentsince the first legislative reforms were enacted under Gov. GrayDavis in 2003. "The overall result of those reforms is a plunge–nota fall, not a dramatic decrease, but a plunge in the costs ofworkers' 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, headded. "There's more relief possible for employers," said Mr.Garamendi. "We should, in the months ahead, see better and lowerprices in the state of California."

Different insurers have passed along different levels ofsavings, the commissioner noted, with some passing roughly 40percent or less and others passing 100 percent or more on topolicyholders. The commissioner noted that there could be differentreasons for companies not passing along the bulk of savings,depending on where they stood in pricing terms before the reformswere introduced, the financial status of the company and otherfactors.

As an example, he noted that the State Fund–California'snon-profit workers' comp provider–did not pass along the entiretyof its savings in order to rebuild its reserves.

Those reserves are expected to reach adequate levels in the verynear future, if they haven't already, meaning that the State Fundsoon will be able to further reduce its rates, according to Mr.Garamendi. He said this would play an important role in driving therest of the market's rates down, as he noted that companies oftenprice "around the State Fund."

Looking forward, he said he would like to see the State Fund'smarket 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 InsuranceCompanies, noted that prior to reforms, the costs for insurerspeaked in 1999 at approximately $1.84 paid out for every $1 ofpremium collected.

"The pendulum now is swinging the other way with substantialchanges in loss ratios, according to figures just released by theWorkers' Compensation Insurance Rating Bureau," he said."Ultimately, the reforms–as they are fully implemented overtime–will continue to stabilize the system and restorebalance."

However, he noted, several issues are unresolved. "It isimportant to keep in mind that regulations implementing keyelements of the reforms are still being finalized for medicalprovider networks, utilization reviews and the disability ratingschedule," he said.

"At the same time," he continued, "it is uncertain how thereform provisions will be interpreted and implemented by workers'compensation judges. Pending litigation challenging key segments ofthe reforms is also casting doubt over the eventual outcome of thereforms."

California Commissioner John Garamendi says reform laws haveprompted claim costs to "plunge" since 2003.