AB 1985 Takes Workers' Compensation Back to 1995
By Robert Warne - May 14, 2002Will AB 1985set the insurance commissioner free or put carriers in a straighjacket?
As the next hearing for AB 1985 draws near, the debate continues to rage over
whether the insurance commissioner needs new legislation to allow him to do his
job.
Supporters of AB 1985 say the insurance commissioner's hands have been tied by
the legislature since California adopted an open rating system in 1995. The open
rating legislation stripped him of his authority to appropriately regulate workers'
compensation rates. With more control over rates, the commissioner will have one
more tool on his belt designed to keep carriers from insolvency.
A summary was released following the April 30 hearing on the legislation. The
summary explains the intentions of the proposed legislation.
First, it is to reduce the established standards that must be met before the commissioner
can require and insurer to raise rates.
The current law allows the commissioner to disapprove rates based on a certain
criteria if he can objectively prove that the rates threaten the carrier's solvency.
AB 1985 would preserve the same criteria, but would allow the commissioner the
ability to deny certain rates if they can't cover the carrier's losses and expenses.
The second purpose for the bill is to subject carriers that write workers' compensation
policies exclusively to be subject to risk-based capitol requirements. The bill
would establish a formula to determine a carrier's capital requirements. It would
also establish corrective measures the commissioner can take if such requirements
are not met.
The Alliance of American Insurers (AAI) has been an outspoken opponent
of the AB 1985.
Peter Gorman, vice president of the Alliance's Western Region said, "The
proposal is regulatory overkill where a few minor adjustments and clarification
of existing law would suffice." The AIA believes that the commissioner already
has the authority over rates that he needs.
Gorman blames the current workers' compensation distress on rapidly rising and
unexpected medical and indemnity costs, not inadequate rates being charged.
He said the new legislation would turn back the clocks to a time before open rating.
The market is already correcting itself and such legislation as proposed will
put the workers' compensation system is a straightjacket.
The AAI is concerned that the new legislation would be so restrictive it would
prohibit a carrier from granting a discount to an employer who installs safety
equipment at the time the policy is written. This could occur because the discount
plan would never meet the bill's "credible and verifiable" actuarial
test.
The next step for the bill is a hearing before the Assembly Appropriations
Committee, scheduled May 15. | 
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