California regulators have proposed changing the manner in whichinsurance companies would collect deductibles for large-deductibleworkers' compensation policies, drawing criticism from an insurancegroup.

Steve Suchil, assistant vice president for state affairs for theAmerican Insurance Association, attacked the proposal as beingburdensome and unnecessary.

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

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

Mr. Suchil predicted the rule change would restrict the abilityof employers and insurers to enter into deductiblearrangements.

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

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

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

The problems also relate to the types of companies that obtainhigh-deductible policies, Mr. Suchil noted, which are mainlymultistate employers.

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

"The economies of providing one overall letter of credit tosecure all obligations in all states under the workers'compensation deductible program would be reduced, if noteliminated, and insureds will incur more letter of credit costs andincreased insurance program costs," he said.

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

"Insurers have successfully offered large deductible policiesfor 13 years without overreaching regulation," he said, adding thatthe proposed regulations would "micro-manage routine businesstransactions that occur between sophisticated sellers andpurchasers of workers' compensation insurance."