California Insurance Commissioner Steve Poizner said even after the workers’ compensation reforms of 2005, there still are systemic and structural deficiencies in the system.Thus, he ordered the state Workers’ Compensation Insurance Rating Bureau to make improvements. He also recommended a 14.2 percent decrease in workers’ compensation pure premium rates, noting the market is vibrant and profitable.
The advisory recommendation is used by the workers comp insurance industry as a benchmark for filing its rates.
The Commissioner stated that insurers are “reaping tremendous benefits” from recent reforms to the system, currently enjoying historic record-low loss ratios of 37 percent. Those ratios mean that insurers are only paying 37 cents in claims for every dollar collected in premium, he said.
“Recent reforms to the workers’ comp system have worked exceptionally well,” Poizner said. “Costs for insurers have dropped sharply, fueling an extremely healthy market driven by historic and unprecedented cost savings. … I realize that California’s economy will only benefit if injured workers get medical attention quickly, and if the costs savings are fully passed on to employers.”
Consequently, Poizner issued an order to the state’s workers’ comp rating bureau that addresses the following issues, among others:
1. Inaccurate analysis/rate forecasting by the WCIRB – WCIRB recently recommended an 11.3 percent decrease in the pure premium rate. While there have been changes to the system, the WCIRB has been plagued by a 12-year history of forecasting inaccuracy, Poizner said. WCIRB pre-reform recommended rates (1995-2000) were too low by 20 percent to 60 percent to pay claims, and post-reform rate recommendations (2004-2006) would have overpaid claims by 30 percent to 50 percent, he said.
“The failure of the WCIRB to provide accurate forecasts adversely impacts the entire workers’ compensation marketplace,” he said. He ordered an audit of WCIRB to improve its data collection and forecast development.
2. Helping injured workers/improving workplace safety – The commissioner said he is concerned that some injured workers are not getting proper and timely medical attention. To ensure that insurers haven’t instituted abusive utilization reviews, which may delay or prevent proper medical care, he ordered his department, in coordination with the Division of Workers’ Compensation, to begin market conduct exams of insurers to verify that benefits are being delivered promptly. The Commissioner also directed the WCIRB to develop a plan to overhaul its experience rating system, so that businesses will have incentives to improve workplace safety.
3. Increasing competition in the system – Recent reforms have led to a robust and healthy workers’ comp market, the Commissioner said. Yet he believes opportunities exist for insurers wishing to expand, enter or re-enter the market. He plans to host a Workers’ Compensation Summit that will highlight opportunities in the state and examine how to provide continuing stimulation to the market.
4. Reducing rates/fighting fraud – Poizner noted that fraud adds an unacceptable surcharge to the cost of insurance and must be dramatically reduced. To deter illegal activity and lower costs, he formed a blue ribbon Advisory Task Force on Insurance Fraud to determine effective ways to fight workers’ comp fraud.
To view the Commissioner’s order, visit www.insurance.ca.gov/0400-news/0100-press-releases/00602007
/upload/PPDecisionandOrder.pdf
A copy of the proposed decision is available at www.insurance.ca. gov/0400-news/0100-press-releases/
00602007/upload/PPProposedDecision.pdf
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