A.M. Best: Reforms Create a Profitable Calif. Workers’ Comp Market

February 20, 2007

The workers’ compensation environment in California has experienced a metamorphosis over the past few years, changing a historically unprofitable line of business into an appealing and profitable line that has seen increased competition, this according to a special report by the A.M. Best Co.

Catalysts for the transformation were several pieces of state legislation, including Assembly Bills 749 (AB 749) and 227 (AB 227) and Senate Bills 228 (SB 228) and 899 (SB 899), which drastically reduced workers’ compensation loss costs and frequency trends in the state. However, it still is premature to view these reforms as final and lasting in light of the uncertainty of the actual long-term savings generated by the reforms, considering this long-tailed business. Although the reforms have weathered several challenges, a rollback in some areas still is a threat to the health of the line and the savings realized by California employers.

Despite the changes in the California workers’ compensation market, which have created a very profitable, appealing and competitive line of business, there still is much uncertainty with regard to the longer-term evolution of the market. While expectations are for reduced profits over the midterm, this market has improved considerably and is a highly coveted and profitable line of business for now. Only time will tell if this highly cyclical market can sustain profitability.

Source: A.M. Best Company, www.ambest.com

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