California workers compensation insurance companies have been passing along only about two-thirds of the costs savings they've seen in recent years, according to state insurance commissioner John Garamendi, and should further reduce their rates in the coming months.
Data collected by the California Department of Insurance, he said, shows that the costs of claims have been reduced by approximately 36.5 percent since the first legislative reforms were enacted under Gov. Gray Davis in 2003.
"The overall result of those reforms is a plunge, not a fall, not a dramatic decrease, a plunge in the costs of workers' compensation claims," said Mr. Garamendi
Insurance companies have lagged in passing along those savings, however, reducing rates by a cumulative 26.78 percent, roughly two-thirds, in that time, the commissioner said.
"There's more relief possible for employers," Mr. Garamendi said today. "We should, in the months ahead, see better and lower prices in the state of California," he added.
Different insurance companies have passed along different levels of savings, the commissioner noted, with some passing roughly 40 percent or less and others passing 100 percent or more on to their policyholders.
The commissioner noted that there could be different reasons for companies not passing along the bulk of savings, depending on where they stood in pricing terms before the reforms where introduced, the financial status of the company, or other factors.
As an example, he noted that the State Fund, California's non-profit workers' compensation provider, did not pass along the entirety of its savings in order to rebuild its reserves.
Those reserves are expected to reach adequate levels in the very near future, if they haven't already, meaning that the State fund will soon be able to further reduce its rates, according to Mr. Garamendi.
The commissioner said this would play an important role in driving the rest of the market's rates down, as he noted that companies often price "around the State Fund." Looking forward, however, Mr. Garamendi said he would like to see the State fund's market share, which is currently at a little over 50 percent of the market, decline to "historic levels" in the 20 percent range.
Mr. Garamendi has pressured insurers to pass along the savings they've seen several times in the past as the reforms have been enacted, and noted that insurers have responded. "Each time I've said more should be done, more has been done," he said.
Typically, he noted, "my projection has moved about six months ahead of when the insurance companies are actually doing it."
Sam Sorich, president of the Association of California Insurance Companies, also noted the effects of the reforms and the reduction of premiums for workers compensation coverage. Prior to those reforms, he noted, the costs for insurers peaked in 1999 at approximately $1.84 paid out for every $1 of premium collected.
"The pendulum now is swinging the other way with substantial changes in the loss ratios, according to figures just released by the Workers' Compensation Insurance Rating Bureau," he said. "Ultimately, the reforms – as they are fully implemented over time – will continue to stabilize the system and restore balance."
However, Mr. Sorich noted, several issues surrounding the reforms remain unresolved.
"It is important to keep in mind that regulations implementing key elements of the reforms are still being finalized for medical provider networks, utilization reviews and the disability rating schedule," he said.
"At the same time," he continued, "it is uncertain how the reform provisions will be interpreted and implemented by workers' compensation judges. Pending litigation challenging key segments of the reforms is also casting doubt over the eventual outcome of the reforms."
However, Mr. Sorich agreed with the commissioner's forecast that the market should improve for employers as the reforms take their full effect.
"Despite these uncertainties, the reforms are progressing and results for California businesses are expected to improve with time as the final pieces of the reforms are implemented," he said.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.