3.5% Hike For Calif. Workers' Comp Recommended

Many state officials, including Insurance Commissioner John Garamendi, had predicted that rates would begin to go down soon after the reforms were signed into law in April.

However, earlier legislation mandated an increase in certain workers' comp benefits. According to Nicole Mahrt, a spokesperson for the American Insurance Association's Sacramento, Calif., office, the WCIRB recommendation comes as those benefit increases have begun to kick in.

Any rate decreases, Ms. Mahrt said, would depend on the cost savings resulting from the new regulations defining permanent partial disability, or PPD, which will be unveiled later this year. Although the regulations haven't been completed, Mr. Garamendi said that they will provide some relief, possibly enough to counter the recommended increase.

"The Division of Workers' Compensation administrative director stated that the regulations should yield cost savings," he said. "When the regulations are in place we may find sufficient savings to more than offset the WCIRB'S recommended 3.5 percent increase." He said this would continue the rate reductions that began with the passage of an initial set of reforms in the summer of 2003.

Complicating matters somewhat, Ms. Mahrt noted that the timing of the regulations' release is very close to the time that Mr. Garamendi must make a final decision on advisory workers' comp rates, saying that the commissioner is in "a tough spot."

She said, however, that the WCIRB's statement that the PPD regulation will result in savings negates claims by labor groups that the rules would be cost-neutral, and thus would not help lower rates.

Proposed regulations establishing the rules for provider networks mandated by the reforms passed this spring are set to be unveiled next week. The regulations will have a ten-day comment period and have been classified as cost-neutral by the WCIRB.

Workers' comp insurers in California have begun to see some good financial news this year, according to Ms. Mahrt. She noted that companies showed a profit in the first quarter. "For the first time in a long time, insurers are making a profit," she commented. "We've had one quarter of good news after a decade of losses and red ink."

Insurers remain under-reserved by about 7.1 percent, Ms. Mahrt said, but she added that, "as insurers start to make money, they will take care of the reserve issue."

Even more importantly, Ms. Mahrt said, was that with companies making money, competition will be attracted to the market, increasing the benefits to employers and weakening the threat from labor groups of resurrecting the rate regulation concept when state lawmakers return to Sacramento next year. In terms of costs, to both insurers and employers, "we're definitely on a downward trend," Ms. Mahrt said. "If we continue to reduce costs, we're going to see new capital come into the market."