New Permanent Disability Regulations to Reduce Workers’ Comp Rates

May 19, 2005

New permanent disability regulations will reduce the cost of workers’ compensation insurance pure premium rates by anywhere from three to 12 percent, said California Insurance Commissioner John Garamendi in a conference call to the media. Garamendi heard testimony given by industry experts at a hearing on May 19 to examine the effects of workers’ comp reforms enacted last year.

“We now have evidence that the reforms enacted in SB 899 are taking hold and further reducing the cost of claims,” Garamendi said. “It is unclear exactly how much those reforms will add to the reduction of claims, but we do know that there is some substantial evidence. In addition to [those reductions], there is further reduction that will occur as a result of the permanent disability system kicking into place. How much more will there be? There is some guessing going on. Because the schedule is new and because the implementation of the American Medical Association guidelines is new, there are no firm estimates as to how much further claims can be reduced. The range provided [by experts] is an additional 3 percent to an additional 10-12 percent reduction.”

Over the next week, Garamendi will review the information submitted at the hearing and work with his actuaries to determine his pure premium rate recommendation to insurers for the period beginning July 1, which is unbinding. Garamendi said that according to testimony, public members suggested a 20 percent reduction, while the Workers’ Compensation Insurance Rating Bureau suggested a 13.8 percent reduction in rates.

“I will be making a judgment call,” Garamendi said. “I will establish a pure premium rate towards the end of next week, maybe early the following week.”

The commissioner also said that he was concerned about a “data gap” given the novelty of the permanent disability regulations. He said that information that his department traditionally uses—statistical projections based on history—are not useful in this instance. He said that he would like to find a way to gather timely information on claims that are being adjudicated now so that regulators and lawmakers can better assess the savings resulting from the workers’ comp reforms.

“We will continue to pursue better data collection both at the Legislature, at the Dept. of Industrial Relations, and as well as our own data collection,” he said. “In the days ahead, we will be completing our analysis of what is going on in the insurance industry in regard to their cost of claims, their loss ratios and their profit margins.”

He said that the Department’s focus will be on the large insurance companies, including the quasi-public State Compensation Insurance Fund.

“We may, depending on the information we receive, decide to hold an investigative hearing so that this Department, the governor’s [office] and the Legislature can have useful information as they ponder the various policy questions.”

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