Continuing his push to reform the state’s broken workers’ compensation system, California Insurance Commissioner John Garamendi will travel to New York to meet with executives of some of the country’s largest insurers to try to bring more of them back to the California market.
Garamendi will leave for New York on Saturday and plans to meet with the executives over the course of several days, as well as attend the National Association of Insurance Commissioners meeting.
“It is paramount to the health of the California economy that this broken workers’ compensation system be repaired now,” said Garamendi. “Employers are cutting benefits, closing their doors, and even leaving the state because of the incredible increases in premiums they face. More competition is a key to righting this market, and my goal is to bring more insurers back to the Golden State.”
Currently, the State Compensation Insurance Fund writes policies for about 60 percent of the market, making it the largest workers’ compensation insurer in the nation. But it has struggled financially, and a tripling of its size in the past four years has placed its management under tremendous pressure.
State Fund, however, recently announced positive financial results in January, indicating that significant legislative reform of the system signed into law last year is working. Also, the Workers’ Compensation Insurance Rating Bureau (WCIRB) issued a revised projection of losses for the industry on Tuesday, lowering its estimate from $24.9 billion to $17.9 billion. Garamendi said these events are powerful indications that the market is stabilizing and can indeed begin to attract new insurers.
“The WCIRB’s revised estimate of savings from the reforms is a strong signal that good legislation can bring additional relief to employers while helping stabilize the market for the benefit of insurers,” the Commissioner said. “This will help convince insurers that they can find predictability in this market and that they can operate profitably. By injecting stability and consistency into our worker’s comp system, we will negate a huge obstacle that has prevented many insurers from reentering our market.”
Garamendi’s legislation to continue reform of the system was introduced last month as ABX4 15 by Assemblyman Juan Vargas, D-San Diego.
He sees it as a bridge to help bring labor and business together for a solution. If legislation is passed by March 31, he will be able to calculate the additional savings into his July pure premium rate advisory recommendation. Insurers often use this number as a baseline to set premium rates.
The Commissioner and other reform leaders have worked since taking office to push comprehensive reform of the system, which grew from $9 billion in costs in 1995 to nearly $30 billion in 2003. The Commissioner currently manages 25 bankrupt insurers who were victims of a pricing war that ensued after the state Legislature eliminated the minimum rate law in 1995.
As those companies became insolvent, their business primarily went to the State Fund, which grew from around 20 percent of the market just three years ago to the dominant force in the market today. As competitors left the market and medical costs within the system soared, employers began to experience, double, triple, and even quadruple increases in their annual workers’ comp premiums.
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