Garamendi Addresses Workers’ Compensation Insurance Premiums, Questions Adequacy of Reductions
Insurance Commissioner John Garamendi (D) on Monday said that workers' compensation insurers have not lowered premiums in accordance with his recommendations over the past 18 months and that he will investigate insurance companies' claims handling and pricing policies, the Sacramento Bee reports.
According to Garamendi, insurers paid 45 cents in medical claims for every $1 in premiums collected in 2004 (Chan, Sacramento Bee, 4/26). By comparison, insurers lost 60 cents for every premium dollar collected in 2003 and lost 89 cents in 2002 (Lifsher, Los Angeles Times, 4/26).
The Workers' Compensation Insurance Rating Bureau recommended a 10.4% reduction in premiums on policies written or renewed after July 1, citing profits among workers' compensation insurers in 2004. Garamendi, some labor leaders and Democrats say the rates should be reduced further.
Labor leaders and attorneys for workers' compensation claimants called for rates to be reduced by as much as 27% (Sacramento Bee, 4/26).
David Bellusci, an actuary for WCIRB, said the bureau's recommendation did not take into account new reforms to the system that will reduce the payouts to permanently injured workers. He said the bureau's recommended rate reduction in May likely would be higher due to the new rules (Abate, San Francisco Chronicle, 4/26).
One study estimated that the new rules, developed by Division of Workers' Compensation Director Andrea Hoch, will reduce payments to permanently injured workers by 70%, depending on the injury (Lohse, San Jose Mercury News, 4/26).
Garamendi in May will issue a nonbinding recommendation for workers' compensation insurance rates (Sacramento Bee, 4/26).
Garamendi said, "This is a sign that the margin between the cost of claims and premium levels are out of whack" (Los Angeles Times, 4/26). He said, "It's unprecedented. Clearly the cost of claims has plummeted to a point where the burning question is: Why haven't premiums followed the cost of claims downward?"
Garamendi added, "We have a situation where hundreds of injured workers are saying they are not getting treatment, not getting benefits. ... The premium level to business is very high. What are the insurance companies doing here? Are they socking away enormous profits? Are they making up for losses in the past?" (Sacramento Bee, 4/26).
Workers' compensation insurers say increased profits will draw new insurers to the state, and the subsequent competition could cause premiums to decrease.
Nicole Mahrt, a spokesperson for the American Insurance Association, said, savings "are already being passed on to customers. There are going to be more. The reforms are working. If insurers are charging too much, they're going to lose customers" (Sacramento Bee, 4/26).
It is "unclear" whether the Senate Rules Committee on Wednesday will vote to confirm Hoch as DWC director, the Mercury News reports (San Jose Mercury News, 4/26).
Hoch has been criticized by Democrats for "overstep[ing] her rule-writing role, apparently in a bid to save more money for employers and insurance companies than lawmakers intended," according to the Mercury News.
Vince Sollitto, a spokesperson for Gov. Arnold Schwarzenegger (R), said that the governor continues to support Hoch and the new rules. Sollitto said premiums have been reduced "significantly," adding, "Let's give it a chance to work" (San Jose Mercury News, 4/26).