The California workers’ compensation system is broken with employers under immense financial strain due to continually rising premiums and employees feeling their legitimate claims being tarnished by the increasing amount of fraud. Current market conditions are forcing companies to take drastic measures to stay afloat, including layoffs, health program cuts and shut downs, according to a panel of experts.
The future of California’s Workers’ Compensation was the focus of a panel discussion recently held at the 3-day California Workers’ Comp Forum in Huntington Beach. More than 200 employers and business executives attended the panel discussion moderated by Tim East, director of Risk Management for The Walt Disney Company.
“Until we attract private specialty carriers back into the state, the workers’ compensation system in California will continue to be in disarray and employers will continue to have little or no choice over their workers’ compensation carriers,” said Nick Roxborough, an employers’ rights lawyer with Roxborough, Pomerance & Nye, who served as one of the panelists.
The State of California Insurance Fund (State Fund), the “insurer of last resort,” has played a critically important role in California’s workers’ compensation market, according to Roxborough. However, when various insurers left the California market and 28 carriers became insolvent during the past few years, many employers were forced to place coverage with State Fund. As a result, State Fund wrote several billion dollars of additional premiums, more than doubling its market share to approximately 50 percent. This rapid growth caused numerous problems including poor claims management and overpayment of claims due to understaffing, as well as possible inadequate surplus reserves, thus jeopardizing its financial viability.
“Under present market conditions, State Fund will continue to be overburdened, overwhelmed, and unable to manage its book of business,” he added. “Claims costs will continue to spiral as State Fund probably cannot manage its claims at the current level.”
However, attracting private specialty carriers to the California market will level the playing field and provide employers with real choices, Roxborough advised. “But we need to relay premium-to-surplus ratios so that the California workers’ compensation market will become more attractive to private equity fund managers looking to invest in a workers compensation carrier in California.”
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