Calif. Comp Insurer Scorns Higher Rate Reduction

His comments came in light of an advisory pure premium rate filing by the Workers' Compensation Insurance Rating Bureau calling for cuts of 13-to-15 percent, and remarks by California Insurance Commissioner John Garamendi suggesting a reduction of 18-to-20 percent.

In its filing, the WCIRB estimates that provisions of the new workers' comp law (SB 899) that are currently effective will reduce projected statewide benefit costs by approximately 15 percent, or $3 billion, and loss adjustment expenses by approximately 9 percent, or $0.3 billion.

"They are dealing with no facts and political spin. The reality is that this system will take time to get educated about all these new rules," said Mr. Zax.

The executive said difficulties in factoring the effects of the new law arise from a lack of knowledge about how physicians will respond and how much litigation will result.

He said that benefits will increase sharply when a 70 percent disability level threshold is crossed, and there could be "a lot more litigation to try and get people across the 70 percent threshold" and "a big pay day."

The payment of benefits until a claim is officially denied could also raise costs, Mr. Zax suggested.

In a statement released at the time of his firm's filing to cut rates effective July 1, he said the company believes "a measured and gradualistic response is appropriate to estimating the future financial impact of the workers' compensation reform legislation. This is due to many factors, among which are"

? "The role of government in operating the system and its efforts to fight fraud.

? "The relative insensitivity of the California system to cost reductions.

? "The experimental nature of many of the reforms.

? "The fact that some of the reforms may increase operating costs or loss costs.

? "The fact that several key reforms will not become effective until Jan. 1, 2005.

? "The long learning curve which will be necessary by all participants to implement the changes.

? "The risk and cost of litigation."

He ended by commenting that the legislation, "which is encouraging and should have a favorable impact on cost trends when fully implemented, should result in additional gradual cost reductions, the amount and timing of which are not quantifiable or cannot be prudently estimated at this time. As we witness the additional impacts of the legislation, we will make additional appropriate rate adjustments."

Mr. Zax said in terms of premium, his company ranks fifth in the state, and in terms of number of policies it is second only to the State Fund, with 27,000.