Worker's Comp Rates in 2005

Last month Insurance Commissioner John Garamendi said workers' compensation insurance premiums should be cut an average of 2.2 percent in January. Insurance companies do not have to follow the commission's recommendations, and in the recent past they have not dropped rates nearly as drastically as Garamendi has suggested.

Business groups and labor leaders are both disappointed that rates aren't going down more, given that the system has undergone two major overhauls -- in 2003 and 2004. Since July 2003, insurers have dropped average premiums by only 10.4 percent.

Labor leaders, and the applicants' attorneys in particular, are complaining that insurers aren't cutting rates enough, and they are threatening to push for some form of insurance rate regulation.

Business leaders are more inclined to believe that price regulation would frighten insurers who are starting to return to California. They know that more insurance industry competition will fix the market in the long run.

Although the governor and the Legislature want everyone to believe that they have overcome all the problems with the system, the reality is that the insurance companies are going to have to see actual cost reductions before they believe them. That will take some time.

On the positive side, Nicole Mahrt of the American Insurance Association points out that the two workers' compensation reforms halted what had been an upwardly spiraling trend. "The double-digit, autopilot increases have stopped," she said.

One big unknown is the impact of upcoming regulations that will create a new system for calculating permanent disability payments for injured workers. The deadline for this important piece of the 2004 reform package is January 1, 2005. Hopefully, these regulations will produce cost savings significant enough to lower rates more substantially than what is suggested by Garamendi.