AIA Defends California’s Competitive Rate Law

California Insurance Commissioner Harry Low’s call for legislative changes to California’s competitive rate law is unwarranted, according to the American Insurance Association (AIA). AIA’s analysis shows that the Commissioner and the California Department of Insurance (CDI) have ample regulatory authority under existing law to prevent the insolvency of workers’ compensation insurers.

AIA has submitted comments responding to Commissioner Low’s list of proposed changes expanding the Department’s authority to regulate insurers selling workers’ compensation coverage in California.

Mark Webb, AIA vice president, state affairs, stated that the proposed rate law amendments are deficient for several reasons. He added that insurers should be allowed to compete based on all of the services and products they offer and that measuring rate adequacy solely based on workers’ comp policies sold in California is contrary to the incentives in risk-based capital, which encourage diversification of writings by line and by state.

Webb also maintained that the Commissioner has a number of tools available to ensure that insurers have adequate reserves to pay claims.

• All insurers conducting business in California are required to maintain enough reserves to pay for all of the losses and claims for which they may be liable. The Commissioner has authority to promulgate regulations requiring reserves to protect the insured and to maintain the solvency of the insurer. The Commissioner can re-calculate the reserve formula as needed when a company grows or experiences losses.

• “Risk-based Capital” is a comprehensive formula designed to assist the Commissioner and to make certain that insurance companies maintain the capital and surplus necessary to conduct their insurer operations.

Topics California Carriers Workers' Compensation