Calif. Commissioner Calls for 2.2 Percent Drop in Workers’ Comp Pure Premium Rates

November 17, 2004

California Insurance Commissioner John Garamendi has called for a 2.2 percent reduction in workers’ compensation pure premium rates.

This represents the commissioner’s third recommended reduction in a row and results in a 22.6% cumulative decrease in the pure premium rate since July 2003. Below are comments offered by Garamendi.

“On July 1, 2003, I issued my first pure premium rate recommendation during this term in office. It was an increase of 7.2%. At that time medical costs within the system were out of control, employers faced double digit premium increases, and injured workers were struggling to get the care to which they were entitled. In short, the system was broken.

“My immediate priority was to help repair this broken system and bring relief to injured workers and employers. I enlisted the aid of the legislature, and together we succeeded in crafting and passing significant reform that has stopped the incredible pace of medical cost inflation. The impact of those reforms has allowed me to recommend successive pure premium rate decreases amounting to more than 20 percent.

“Today, I announce my latest Decision. In accordance with the law and on the advice of my staff, including two Department actuaries, I have reduced the Workers’ Compensation Insurance Rating Bureau’s proposed advisory pure premium rate from an increase of 3.5 percent to a decrease of 2.2 percent for policies incepting on or after January 1, 2005. This is the third decrease in a row that I have recommended, totaling 22.6 percent in reductions since July 2003. But our job is not yet done.

“There is a growing concern that insurers have not passed along all of the potential savings to employers in the form of reduced premiums. The evidence shows that although I have recommended upwards of 22 percent in reductions since July 1, 2003, insurers filing rates with the Department have generally reduced their rates by a little over 10 percent.

“Consequently, there is a mounting call for the enactment of rate regulation to pass on the savings fully. While I do not support such a proposal, it is clear that unless the savings are given to employers soon something will be done to require insurers to do so.

“I am also concerned that additional savings that should be available to employers are not yet within their reach. SB 899 was enacted this year to further reform the workers’ compensation system. However, the law in its current form lacks clarity and requires regulations that have yet to be written. This circumstance makes implementation difficult, if not impossible, and engenders uncertainty that could breed unnecessary litigation and dissuade new insurers from entering the market. That is unfortunate, because the previous reforms have already lured two insurers to the state who have injected more than $1.5 billion of capital into the market. Several more companies are now in the pipeline for approval. SB 899 simply must be clarified by the Legislature and Governor soon, or I fear it will languish in the courts over the next decade.

“Finally, the State Compensation Insurance Fund continues to be a key component of any complete reform of this system. I warned in early 2003 that the State Fund had serious management, operational, and financial difficulties that must be addressed immediately. I worked with management there to address these problems, and the result is a State Fund that has improved its financial condition. However, it is still unable to pass along the full extent of the savings to employers, and as a market leader, with more than 50% of all workers’ compensation business in the state, it is essential that this happen.

“We have achieved much in the past two years. But we haven’t finished the task. The reform legislation must be cleaned up and the current reform savings must be passed through to employers. Only then can we be confident that workers’ compensation in California will be healthy for the foreseeable future.”

A copy of the Commissioner’s Pure Premium Rate Decision is posted on the Department’s Web site at

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