Proposed workers' compensation reform legislation introduced inthe California state legislature is getting a thumbs down frominsurance trade groups.

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

But officials of the American Insurance Association and theAssociation of California Insurance Companies say thelegislation would increase benefit payments to those on permanentdisability immediately while relying on cost-cutting that a newanalysis says might not be realized.

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

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

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

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

Berte, speaking along those same lines, says, "AIA membercompanies' policyholders, public agencies, and self-insuredsjustifiably require verification of real savings to offset not onlybenefit increases, but current system cost pressures drivingthe WCIRB's recently proposed 12.6 percent advisory purepremium rate increase, to be effective Jan. 1, 2013."

Jones had requested the WCIRB analysis, noting that the agencyis the sole rating organization for all California workers'compensation insurance companies. Jones says the WCIRB analysisindicates that SB 863 has cost savings that "significantly offsetthe costs of providing needed increases of permanent disabilitybenefits for California's injured workers."

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