Garamendi Says Largest Workers' Comp Insurer Can Cut Rates Another 5.9 Percent
By STEVE LAWRENCE of Associated Press - July 10, 2004SACRAMENTO (AP) _ California's largest workers' compensation insurer could cut rates another 5.9 percent by reducing commissions, diversifying its investments and changing underwriting practices, state Insurance Commissioner John Garamendi said.
Issuing a report required by a law passed last year, Garamendi said Friday he found "much room for operational improvement'' in the State Compensation Insurance Fund, a nonprofit, quasi-governmental agency that has more than half of the state's workers' comp insurance market.
Leaders of State Fund, as the insurer is commonly called, were still reviewing the report Friday afternoon, spokesman Jim Zelinski said. The insurer will follow any recommendations that will save money for the system and employers, he said.
Last month, State Fund announced an average rate cut of 7 percent, a week after Garamendi recommended a 21 percent rate cut for all workers' comp insurers.
That 7 percent cut for policies sold or renewed starting July 1 followed a 2.9 percent cut made by State Fund in January.
The insurer had to balance keeping rates down with maintaining the fund's financial strength, Zelinski said.
Overall, workers' comp insurers cut rates 3.6 percent in January and 7.4 percent in July, according to Byron Tucker, a spokesman for Garamendi.
Consumer advocates and some Democratic lawmakers have cited the failure of companies to cut their rates more as they called for the state to regulate rates.
Most employers are required to buy workers' comp insurance to cover the cost of dealing with work-related injuries suffered by their employees. Prices for that insurance have shot up dramatically in the last several years, fueling demands for legislation to cut workers' comp costs.
Lawmakers passed changes designed to cut costs last year and this past April.
Garamendi suggested State Fund should cut the maximum 5.5 percent commissions it pays brokers and give a discount to customers that buy polices directly from State Fund employees.
Although State Fund has been cutting the size of commissions since 2002, Garamendi said, brokers' earnings have gone up because of the 100 percent increase in State Fund policy rates since that year.
The commissioner also said State Fund could "modestly increase'' its investment earnings and cut its rates if the Legislature would allow the fund to invest as broadly as other insurance carriers.
Current law limits the fund to investing in "conservative and liquid bonds,'' although it has gone beyond those restrictions, Garamendi added.
He also recommended a series of changes in the fund's underwriting practices, including ensuring that all of its policyholders are aware of discounts that may be available to them and fully implementing the "best practices'' procedures recommended in a confidential audit done by IBM Business Consulting Services.
He said that following the audit's recommendations could result in annual savings of $294 million.
Garamendi said he would issue a supplemental report within 45 days on the fund's reserves and suggested that lawmakers and the governor should order a review of how State Fund handles claims. He said those two reviews could have a bigger impact on rates. | 
__May11th2017.gif)
.gif)