Garamendi Disappointed By State Funds 7 Percent Rate Cut

Insurance Commissioner John Garamendi criticized a decision by the State Compensation Insurance Fund to cut workers' compensation premium rates by only 7 percent last week.

Earlier, the commissioner had called for insurers to cut slash the pure premium part of rates (reflecting loss costs) by a 21 percent.

“This is disappointing,” commented Commissioner Garamendi, on news of the 7 percent cut that would apply to new and renewal policies with effective dates on or after July 1. But the commissioner also remarked, “I understand the historical financial issues that the State Compensation Insurance Fund faces.”

The rate cut reflects projected cost savings from legislative reforms adopted earlier this year. This follows an average 2.9 percent rate decrease that became effective beginning this year.

State Fund President Dianne Oki, in defending the funds smaller-than-expected rate cut, commented that several different factors were considered in making the decision. This rate decision, she said, “prudently balances” needs of State Fund's policyholders for immediate rate relief and the desire to pass on savings expected from two recent legislative reforms, with the fund's need to further strengthen its cash surplus.

To fulfill its mission, she noted, the State Fund must maintain its financial strength to meet its obligations to California employers and injured workers. “This rate filing achieves this objective,” she said.

Ms. Oki also hinted that there could be more rate cuts to come. “Perhaps the best news is the potential for further rate reductions going forward,” she said. “Some elements of reform that are unquantifiable up front will bring down rates as savings emerge in experience, while other elements of reformsuch as changes in the permanent disability rating systemwill be reflected in rates when they take effect next year.”

(Beyond new permanent disability guidelines, the latest reforms, signed into law on Apr. 19, set new return-to-work provisions, cap temporary disability benefits to two years, and create an independent medical review board, among other things.)

Commissioner Garamendi said that, as required by law, his department will analyze the SCIF filing to determine “whether all of the available savings are indeed being passed on to employers.”

The commissioner also said he would ask Gov. Arnold Schwarzenegger, who appoints State Fund's governing board, “to turn his attention to the management and operational problems of State Fund. Through his appointment of the board of directors, he has the power to remove obstacles that would prevent savings from being passed on.”

Calif. Commissioner John Garamendi, disappointed by SCIF's lower-than-expected rate cut, is well aware of the historical financial issues the comp insurer faces.

Reproduced from National Underwriter Edition, June 11, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

Special Reports /

Garamendi Disappointed By State Funds 7 Percent Rate Cut

Related Stories

Recommended For You