Garamendi Calls for 18% Decrease in Work Comp Pure Premium Rate

June 1, 2005

California Insurance Commissioner John Garamendi called for an 18 percent decrease in workers’ compensation pure premium rates and issued the following statement on June 1:

“The historic workers’ compensation reforms beginning with AB 227 and SB 228 are working. California’s workers’ compensation system costs are no longer on the up escalator, and the cost of claims is on the down elevator in a rapid descent. The reforms are working.

“Today, I have completed my assessment of the workers’ compensation system through hearings on the pure premium rate, as well as extensive actuarial analysis of the costs within the system.

“Using that information, I am recommending an additional 18 percent reduction in the cost of claims for policies incepting on or after July 2005. Combined with the 22.6 percent in reductions I have recommended since 2003, this brings the total amount of reductions to 36.5 percent since the reforms were enacted.

“This, by any measure, is a remarkable turnaround for a system that was without question broken just a few short years ago. The Roadmap to Reform that I wrote two years ago has worked.

“These reforms and an ongoing significant reduction in the frequency of claims have allowed insurers to enjoy an historic reduction in claims loss ratio. In 2004 just 45 cents of each dollar of premium was paid to cover the actual cost of claims.

“Unfortunately, far too many employers have not enjoyed a similar reduction in the premiums they pay. Many insurers have been slow to fully implement my recommended reductions and pass on the savings as rapidly as possible. It is past time for the savings from reforms to be passed along to overburdened employers and injured workers.

“I stand here today with Mr. Ron Alvernaz, owner of The Distillery restaurant and bar in Sacramento. He is a prime example of an employer who is struggling to make ends meet due to workers’ compensation costs – his own premiums have more than doubled since 2003. He and others like him anxiously await the benefits of the reforms.

“I do believe that Mr. Alvernaz and other employers throughout the state will soon see the benefits of the changes. We have been working closely with the State Compensation Insurance Fund to help it address its financial issues, and we know that it is developing programs to allow it to lower premiums. I expect State Fund to announce the results of these efforts later today.

“We now know, without speculation, that the reforms are working effectively, that costs are dropping, and that insurers are realizing savings.

“The Workers’ Compensation Insurance Rating Bureau, an organization comprised of industry representatives that is charged with projecting future costs, has consistently recommended reductions to the pure premium rate that have not kept pace with the actual decrease in claims costs. The pure premium rate reductions that I have issued in three decisions since mid-2003 have been more accurate projections of the actual results of the reforms. Accordingly, the reductions I have identified today must be passed along to employers in order to rev up California’s economic engine.

“My message to the workers’ compensation industry today is this: Reduce your premiums now – pass the historic cost reductions on to every business in the state.”

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