Deregulation is Hurting Workers’ Compensation Insurers, Times Says
California's "plunge into deregulation," which sparked the state's energy crisis, also has "disrupted" the workers' compensation insurance industry, "where a wave of insolvencies has led officials to warn of a looming crisis," the Los Angeles Times reports. Regulators and lawmakers are becoming "increasingly concerned" that the industry is in "serious trouble." They cite the following problems:
- Among the top 12 companies that specialized in workers' compensation coverage in 1994 -- the year prior to deregulation -- eight have become "insolvent, been forced to operate under the supervision of the state, or are not doing any new business in California."
- Last year, the industry was "possibly as much as $7 billion short of the reserves it needed to pay claims," according to the Workers Compensation Insurance Rating Bureau, a not-for-profit association that tracks the industry's performance for the state.
- The California Insurance Guarantee Association, which pays claims for injured workers when an insurance carrier becomes insolvent, "warns that it will run out of money in January."
The Times reports that the industry's problems originated in 1993, a law removed the requirement that the state establish a minimum rate insurers can charge for workers' compensation coverage. The repeal touched off "cutthroat competition" in the industry, as insurers began charging "less than cost" for their coverage, resulting in a "precipitous drop in rates that had been the highest in the nation." The Times reports that many insurers "did not have deep enough pockets to stay in the game," and they became insolvent or pulled out of the California market. However, supporters of deregulation "insist" that the current system has gotten an "unfair rap." Dennis Aigner, former chair of the California Rate Study Commission, which proposed the system, said that former Insurance Commissioner Chuck Quackenbush had the authority to take steps to prevent companies from becoming insolvent, but that he failed to take action "despite ample evidence that some companies were in trouble."
Although the problem has "attracted little public attention," some state lawmakers are looking for solutions. Assembly Insurance Committee Chair Thomas Calderon (D-Montebello) is now working with state Senate President Pro Tem John Burton (D-San Francisco) on legislation (SB 71) that would increase benefits for workers and provide state Insurance Commissioner Harry Low with "tools to stabilize the private side of the industry." The legislation would establish a "modified minimum rate plan," which would allow Low to reject rates that are below cost. Calderon also introduced a bill (AB 1183) that would "attempt to rescue the Insurance Guarantee Association by raising the surcharge on worker compensation premiums from 1% to 2%." The surcharge is used to pay claims for insured workers covered by insurance companies that have gone bankrupt. Still, some lawmakers and state regulators say that despite the problems, "there is little appetite yet for scrapping deregulation entirely and returning to the old system of a uniform minimum rate" (Ellis, Los Angeles Times, 4/17).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.