Garamendi Recommends 2.2 Percent Drop In Rates
By Steve Lawrence, Associated Press Writer - November 17, 2004SACRAMENTO (AP) _ Announcing a slight drop in an advisory rate, Insurance Commissioner John Garamendi urged California insurers Wednesday to make more cuts in the rates they charge businesses for workers' compensation coverage.
He announced a 2.2 percent drop in his pure premium advisory rate for policies that are issued or renewed starting Jan. 1, saying cost-cutting steps adopted by lawmakers over the last two years had overcome pressures for price increases.
The Workers' Compensation Insurance Rating Bureau, an industry association, had recommended a 3.5 percent hike in the advisory rate.
"While there clearly were upward pressures on the cost of claims, there were overall stronger pressures from the reforms," Garamendi said in a conference call with reporters. "The result is we're advising that costs are not going up but are continuing to decline.''
The pure premium rate is the commissioner's estimate of insurers' cost of paying benefits and processing claims. It doesn't include profits, overhead, taxes, commissions and other costs, but it often serves as a benchmark for insurers in determining what they charge for the coverage that most employers are required to buy.
Overall, Garamendi's projection of the cost of claims has dropped 22.6 percent since the middle of 2003, but average workers' comp insurance rates paid by employers have dipped only 10.4 percent -despite the series of reforms designed to reduce skyrocketing increases.
Garamendi said the full impact of a second round of changes adopted by lawmakers in April hasn't been felt because there are a series of regulations that need to be adopted and ambiguities in the legislation that need to be clarified, but he said rates could come down more.
"The workers' comp companies have been reporting profits for almost a year now,'' he said. "I believe that there are further savings that can be passed on to the businesses of California by all of these companies.''
But he said there was no incentive for private insurers to cut rates more until the State Compensation Insurance Fund, the quasi-governmental agency that has most of the California market, does. "State Fund is the key; State Fund opens the door,'' he said.
He said State Fund's officers had begun to correct the agency's financial problems but needed to adopt a long-term management plan that would maintain adequate surpluses and significantly lower rates.
Spokesman Jim Zelinski said State Fund had improved its financial condition and that its rates would come down as its costs do.
"We're subject to the same cost pressures as all other carriers,'' he said. "We do think reform measures will bring further savings, but not all of those (reforms) have materialized. As they do, they will be reflected in future rates.''
The California Applicants' Attorneys Association, a group of lawyers who represent injured workers, said insurers should cut rates 24 percent next year.
"Two rounds of cuts have transferred billions from already-strapped injured workers into the pockets of insurance companies,'' said David
Schwartz, the association's president. "Insurers are enjoying record-high profits but claim they can't reduce premiums.''
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On the Net: www.insurance.ca.gov
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