Calif. Lawmaker Accuses Insurers of Gouging, Wants Rate Regulation

Accusing insurers of gouging businesses, a leading Democratic lawmaker announ-ced Jan. 6 that he plans to reintroduce legislation that would regulate workers’ compensation insurance rates.

Sen. Richard Alarcon, the chairman of the Senate Labor and Industrial Relations Committee, also said he would hold a series of hearings on workers’ comp, saying the sweeping changes lawmakers made in the system last year haven’t been producing adequate results.

“We are moving backward,” he said. “We are reducing benefits to workers who are truly injured, and we are not passing on the savings to the smallest businesses in the state of California.”

Representatives of two insurance industry groups said the changes made last April are beginning to reduce workers’ comp costs and rates and that rate regulation would discourage more insurers from entering the California market.

“More insurers will mean more competition, which in turn will help drive down rates even more,” said Sam Sorich, president of the Association of California Insurance Companies.

Alarcon and the California Applicants’ Attorneys Association, a group of lawyers who represent injured workers, held a news conference on the same day that Gov. Arnold Schwarzenegger was scheduled to deliver his State of the State address to lawmakers.

Schwarzenegger was the prime mover behind last year’s legislation, and enlarged copies of the Republican governor’s statements that the bill would not hurt workers were posted on the wall behind where Alarcon and other news conference participants spoke.

“It’s nice rhetoric but it doesn’t meet reality,” said Steve Hopcraft, a spokesman for the attorneys. “The state of the state’s injured workers is desperate.”

Critics say injured workers have been hit with big cuts in benefits and widespread denials of care while the cost of businesses’ workers’ comp insurance has only dropped an average of 10.4 percent since the middle of 2003 and insurers have seen big profits.

Insurance Commissioner John Garamendi said the cost of injured workers’ claims dropped 22.6 percent during that same 18-month period.

Business owners pressed for workers’ comp reforms after their insurance rates jumped an average of 149 percent from 2000 to 2003 following a rate war in the late 1990s.

Most employers are required to buy the insurance, although some large companies with enough assets can “self-insure” and go without the coverage.

Nicole Mahrt, a spokeswoman for the American Insurance Association, said critics who complain about high workers’ comp insurance profits frequently cite “national numbers and then compare them to California.”

“I have one quarter of data which says we’re finally not losing money” in California, she said. “The reason we stopped losing money is because rates increased to cover costs and the reforms started to kick in.”

She said rate regulation would “just create another regulatory burden that’s going to tie insurers’ hands. It’s going to stop the progress we’ve seen.”

But Angie Wei, a lobbyist for the California Labor Federation, said auto insurance and other lines of property/casualty coverage have rate regulation and haven’t suffered a loss of competition.

“Everything in workers’ compensation has now been regulated … except for insurance companies and brokers,” she said. “The way to be good for business now is to guarantee them lower and more competitive workers’ comp rates.”

Alarcon’s bill would create a three-member commission made up of the governor, the attorney general and the insurance commissioner that would set a range of acceptable workers’ comp rates. If insurers wanted to change rates that were higher or lower than the range they would have to justify them at public hearings.

The proposal faces tough going. Alarcon has proposed some form of rate regulation the last two years but failed to persuade his colleagues to include the measures in bills designed to curb workers’ comp costs.

If his latest proposal makes it out of the Legislature, it faces a likely veto by Schwarzenegger. Schwarzenegger said at one point before last year’s legislation was approved that he was willing to consider rate regulation, but one of his aides also said the governor didn’t think it was needed.

Alarcon said it’s important to keep raising the issue.

“We are going to continue to debate until people can see that the only way to have a fair system of workers’ compensation is to bring the pricing on workers’ compensation into the whole light of day, into public view,” Alarcon said.

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