Insurance Commissioner Recommends 14.9% Reduction for Workers’ Compensation Insurance Premium Rates

Insurance Commissioner John Garamendi (D) on Thursday recommended that workers' compensation insurers reduce employer premiums for next year by an average of 14.9%, the Los Angeles Times reports (Dickerson, Los Angeles Times, 11/7). Garamendi said that he recommended the reduction because of the enactment of new workers' compensation reform laws that are expected to result in a one-time, $5 billion savings to the state workers' compensation system, with an additional annual savings of $5.4 billion (Chan, Sacramento Bee, 11/7). Gov. Gray Davis (D) in September signed into law (AB 227 and SB 228), which will establish fee schedules for treatments and prescription drugs; limit chiropractic and physical therapy visits; implement reviews that use national standards to determine the proper amount of care for certain injuries; and increase penalties for employer fraud from $50,000 to $150,000. Gov.-elect Arnold Schwarzenegger (R) has called a special legislative session for this month to address workers' compensation reform and other issues, and Senate President Pro Tem John Burton (D-San Francisco) plans to introduce a bill that would repeal the new workers' compensation reform laws in the special session. Both Schwarzenegger and Garamendi have said that the laws are inadequate and that new laws should establish a system to determine the severity of worker injuries or disabilities (California Healthline, 10/29). Workers' compensation insurers do not have to adhere to recommendations issued by Garamendi, but the announcement made on Thursday places "intense pressure to deliver meaningful premium cuts," the Times reports. Garamendi also said that he will "push" the State Compensation Insurance Fund -- which provides workers' compensation insurance to more than half of state employers -- to reduce premiums, the Times reports. Jim Zelinsky, a spokesperson for the fund, said that fund officials do not plan to release new premiums until the end of November after they have considered the effects of the new workers' compensation reform laws.

The announcements from Garamendi "drew immediate criticism" from insurance industry officials, who said that he is "pushing them too far and too fast to slash" premium rates for workers' compensation insurance, the Times reports (Los Angeles Times, 11/7). Sam Sorich, president of the Association of California Insurance Companies, said, "It will take considerable time for the bills' cost savings to be achieved" (Laing, San Diego Union-Tribune, 11/7). Charles Bacchi, a lobbyist for the California Chamber of Commerce, said that the group supports reductions in workers' compensation insurance premium rates but has concerns that "Garamendi's recommendation was overly optimistic and would give false hope to businesses," the Bee reports (Sacramento Bee, 11/7). Mark Sektnan, a spokesperson for the American Insurance Association, said, "Putting a rate out there that is unrealistic is going to create a lot of tension in the marketplace. ... It's going to create a great deal of frustration among policyholders if their bills don't reflect the exact percentage" (Los Angeles Times, 11/7).