California regulators have proposed changing the manner in which insurance companies would collect deductibles for large-deductible workers' compensation policies, drawing criticism from an insurance group.

Steve Suchil, assistant vice president for state affairs for the American Insurance Association, attacked the proposal as being burdensome and unnecessary.

Under current California rules, he said, insurers collect a deposit or collateral from an employer holding a high-deductible workers' comp policy. These deposits are held in pools by the insurance company, he said, but under the proposal, the insurer would have to maintain a separate account for each policy.

"No other state in the union has found it necessary to regulate in this heavy-handed manner," he said.

Mr. Suchil predicted the rule change would restrict the ability of employers and insurers to enter into deductible arrangements.

"The result will be higher costs for deductible policies which will make this option of coverage less attractive to employers. In the end, if fewer businesses use large-deductible policies and decide to self-insure, the State of California will earn less premium tax income," he said.

In a comment letter to the California Insurance Department, Mr. Suchil argued that the proposed regulation would increase the costs of coverage for a policyholder, without providing any additional protection or benefit.

"The administrative burden of creating and setting up separate trusts for each separate employer, for each policy issued and the fees charged to the trustee by qualified depositories, creates additional costs to insurers which will have to be reflected in costs to the insured, who will not see any benefit for themselves," he said.

The problems also relate to the types of companies that obtain high-deductible policies, Mr. Suchil noted, which are mainly multistate employers.

"Each insured will need to provide its insurer with two letters of credit--one for California losses, and one for losses in all other states," he said.

"The economies of providing one overall letter of credit to secure all obligations in all states under the workers' compensation deductible program would be reduced, if not eliminated, and insureds will incur more letter of credit costs and increased insurance program costs," he said.

Additionally, Mr. Suchil said that insurers calculate the deposit and collateral based on the account, not by individual states, meaning insurers would also have to establish new programs to determine a company's risk solely in California.

"Insurers have successfully offered large deductible policies for 13 years without overreaching regulation," he said, adding that the proposed regulations would "micro-manage routine business transactions that occur between sophisticated sellers and purchasers of workers' compensation insurance."

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Controversy Over Calif. Comp Deductible

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