Calif. Awaits New WC Regulations
Even though Californias energy crisis is yesterdays news, the states troubled workers' compensation insurance industry continues to work in the dark.
A hearing is scheduled for late August in the state Assembly for the most recent workers' comp reform legislation, Senate Bill 71, which has already passed the Senate. "Right now its largely speculation [what the legislature will do]," said Mark Webb, vice president of state affairs for the American Insurance Association in San Diego.
Over the past two years, Mr. Webb said, the legislature has shown an interest in increasing benefits to injured workers. However, two measures were vetoed by the governor.
"We certainly agree that benefits are important, but I think what were looking at is trying to offset those benefit increases by addressing some very fundamental cost drivers in the workers comp system," he said. "As we learn more about some of the research thats been done, it really will focus, I think, on how we can do a better job controlling medical costs in the system."
Overall, he said, it is up in the air whether California will see a bill that offsets increased benefits with a better workers comp system, or a bill "like weve seen in the past that doesnt meet the governors reasonable standards," Mr. Webb said.
The bill is now in the Assembly Insurance Committee, noted Don Moulds, a Sacramento-based consultant for Senator John Burton, D-San Francisco, who sponsored the measure. SB 71 was passed out of the Senate as a "spot bill, without any significant content," he said. Its next stop is the Assembly Appropriations Committee and then on to the Assembly floor near the end of August, he said.
A digest of the bill lists increases in benefits for temporary disability indemnity, permanent total disability indemnity, permanent partial disability indemnity, life pensions, and death benefits for all injured workers and their dependents.
According to the digest, the bill provides "unspecified minimum and maximum benefit amounts for injuries occurring on or after an unspecified time for temporary and permanent total disability, permanent partial disability, life pension benefits and death benefits."
A prior workers' comp bill, SB 320, was vetoed in 1999 by Governor Gray Davis, who said it would have increased costs to California employers by $2.6 million. Another bill, SB 996, was vetoed in 2000, according to the digest.
Norris Clark, deputy commissioner for financial surveillance in the California insurance department's Los Angeles office, said he hopes for regulations that give the department "more ability to meaningfully regulate rates."
An ongoing problem, he said, is that the standard of insolvency is difficult to apply. "Weve never gone to hearing to disapprove any rates because we were unable to make the case," he said.
He continued that "even with companies that ultimately have gone insolvent, its difficult for the commissioner to have a hearing when all weve got is clean actuarial opinions and clean CPA reports that say the company is fine."
For any meaningful regulation of rates, he said, "we need to focus only on California workers comp and those costs associated with California workers comp. We want a rate law that lets us compare apples to apples."
With Californias rash of insolvencies at a standstill, Mr. Clark said he "feels better as time goes on." A few small companies are being watched, he said, "but market share-wise, the big hits have been taken."
Companies that once wrote 23 percent of Californias workers comp market "are either out of business or have significantly curtailed their business," Mr. Clark said. "So for those that are still around there is a lot more business for them to bid on now."
The last "big hit" was Reliance, he said, which at 2 percent of the market was one of Californias top-10 writers as late as 1999.
"Our biggest player, which we continue to monitor, is the State Compensation Insurance Fund," he said.
Mr. Clark said the State Comp Fund asserts it can maintain lower rates because it has maintained adequate pricing and doesnt need to make up for past losses.
"Implicit with that is that companies that cant compete need to recover some prior-year losses," he said. "Unless we went in–and were not going to–and looked at the account and the loss experience, we couldnt make that judgment."
Overall, he said, "I think weve hit bottom" and rates have, as a percentage of pure premium, gone up.
Mr. Clark said that companies have held back on increasing rates because they feared losing business to their competitors. "Ive said, 'Let them take it. Youll be around to fight the battle another day and they wont,'" he noted.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 27, 2001. Copyright 2001 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.
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