State Compensation Insurance Fund Announces 7% Reduction for Workers’ Compensation Insurance Premium Rates

Officials for the State Compensation Insurance Fund on Friday announced that they would reduce workers' compensation insurance premium rates by 7%, a decision that came as a "major disappointment" to small business owners and many Democratic leaders, the Sacramento Bee reports (Chan, Sacramento Bee, 6/5). Insurance Commissioner John Garamendi (D) last month recommended that workers' compensation insurance carriers reduce their premium rates by 20.9% based on expected savings from the recently enacted workers' compensation reform law (SB 899). Garamendi estimated a total savings of $7.75 billion in costs in the $24-billion-per-year state workers' compensation system -- including $5.5 billion from last year's reform measures and $2.25 billion from SB 899. Insurers are not required to adopt the rate recommendation, but they often use it as a benchmark. The recommendation applies to rates on workers' compensation insurance policies written or renewed after July 1 (California Healthline, 6/1). State Fund officials said that the rate reduction will be paired with a 2.9% rate decrease announced in January, resulting in a 10% premium reduction for customers whose policies are scheduled to be renewed after July 1, the Bee reports (Sacramento Bee, 6/5).

Gov. Arnold Schwarzenegger (R) was "not alarmed by the comparatively small drop" in workers' compensation insurance rates, the Los Angeles Times reports. Schwarzenegger on Saturday said that the rate reduction is a positive indicator and that he expects "gradual" rate reductions to continue over the next year, according to the Times. Schwarzenegger said that employers would see "tremendous cost reductions" by January, the Times reports. He added, "The fact of the matter is, this was the first step of many reductions in the workers' compensation costs" (Nicholas, Los Angeles Times, 6/6).

Garamendi said, "I understand the historical financial issues that the State Compensation Insurance Fund faces. Nevertheless, as required by law, my department will analyze this filing to determine whether all available savings are indeed being passed on to employers." Garamendi said that he would ask Schwarzenegger "to remove obstacles that would prevent savings from being passed on" (Calbreath, San Diego Union-Tribune, 6/5). Assembly Speaker Fabian Nunez (D-Los Angeles) said, "This is not the rate relief we're asking (for). This is next to disgraceful for me." He added, "We will do something about it." State Fund President Dianne Oki said the insurer will "continue to review its experience and cost savings" as a result of the new laws. She added, "We expect further rate reductions based on demonstrated savings in 2005" (Sacramento Bee, 6/5).