Proposed workers' compensation reform legislation introduced in the California state legislature is getting a thumbs down from insurance trade groups.

The bill, S.B. 863, crafted by labor and employers, aims to reduce costs within California's workers' compensation system by attacking cost-drivers in order to finance an increase in payments to those on the WC permanent disability rolls. It has the support of State Insurance Commissioner Dave Jones.

But officials of the American Insurance Association and the Association of California Insurance Companies say the legislation would increase benefit payments to those on permanent disability immediately while relying on cost-cutting that a new analysis says might not be realized.

Marjorie Berte, AIA western region vice president, explains that the bill's proponents expect savings to be twice the cost of benefit increases. But she notes that an analysis by the Workers' Compensation Insurance Rating Bureau of California concludes that while claim frequency utilization costs will decrease by $400 million on an annual basis, permanent disability benefit costs will increase by $700 million—adding $300 million annually in new costs to the system beginning in 2014.

"Expectations of net savings of two to one are now put at a net cost increase of 1.4 percent annually," Berte says.

Nicole Mahrt Ganley, a spokesperson for the Association of California Insurance Companies, also questioned whether the cost savings mandated by the bill will "yield much savings."

She also pointed to WCIRB's filing for a 12.6 percent hike in pure premiums, noting the increasing costs in the system overall.

Berte, speaking along those same lines, says, "AIA member companies' policyholders, public agencies, and self-insureds justifiably require verification of real savings to offset not only benefit increases, but current system cost pressures driving the WCIRB's recently proposed 12.6 percent advisory pure premium rate increase, to be effective Jan. 1, 2013."

Jones had requested the WCIRB analysis, noting that the agency is the sole rating organization for all California workers' compensation insurance companies. Jones says the WCIRB analysis indicates that SB 863 has cost savings that "significantly offset the costs of providing needed increases of permanent disability benefits for California's injured workers."

But he acknowledges that he remains concerned about continued rising costs in the system.

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Insurer Groups Question Savings in California Workers' Comp Reform Bill

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