Calif.'s Newest WC Insurer Lowers Rate By 20.9%

The decision, the insurer said, was prompted by an improved forecast for workers' comp loss trends in California, following passage of a legislative reform package.

"This latest round of reductions is in direct response to the reforms passed by the legislature under the leadership of Governor [Arnold] Schwarzenegger," Employers Direct Chief Executive James Little said in a statement. "We believe the corner has turned in California workers' comp for those employers and carriers that are willing to work together."

Direct Insurance's rate cut stands out from competitors because reductions being offered by many other carriers are significantly smaller.

In announcing the rate, Mr. Little did some bragging at the expense of the State Compensation Insurance Fund, which commands nearly 60 percent of the California workers' comp marketplace. The State Fund recently announced that it is cutting its rates by only 9.7 percent because of its need to build up surplus.

"This is more than double the 9.7 percent rate decrease the State Compensation Insurance Fund will provide to its policyholders," Mr. Little boasted.

In addition to the State Fund, a number of other, smaller players in the California workers' comp marketplace have announced rate reductions recently.

Zenith National Group, for example, had announced a 10 percent average cut for new or renewed policies beginning July 1; and Cypress Insurance Company, part of Berkshire Hathaway Group, said it would lower rates by an average of 11.6 percent. Zurich/Farmers Group also announced a 10 percent average rate cut, while American Insurance Company, part of Allianz/Fireman's Fund Group, is filing a 7.3 percent reduction.

Direct Insurance, based in Glendale, Calif., is a specialty carrier that insures select employers who pay at least $75,000 per year in annual workers' comp premiums. The company, which began offering workers' comp coverage in late 2002, is the first new insurer in more than 10 years to come to California's workers' comp market.

Direct Insurance did point out that one factor that made possible such deep cuts and pass on more of the projected savings from the reform to policyholders is that the company is without past issues to resolve.

"Fortunately, as a newer company, we can get those savings to our policyholders immediately, while the carriers that experienced the cut-throat competition of the late ?90s may need to keep a portion of the reform savings to make up lost ground on their balance sheets," Mr. Little observed.