Warning about potential insolvency among workers' compensation insurers, state Insurance Commissioner Dave Jones is supporting an increase in employer-paid premiums -- even though an overhaul of the compensation system for injured and ill workers, passed by the California Legislature this year, promised savings to employers.
Jones' "recommendation" is not binding on insurers, who are free to set their own premiums, but the insurance commissioner's positions are generally followed in the industry. He is, in effect, responding to insurers' complaints in recent years that their costs of providing cash benefits, medical care and rehabilitation to disabled workers have outstripped their revenues.
Jones described his "pure premium" recommendation of $2.56 per $100 of payroll as "a modest 2.8 percent increase" over the current "filed rate" of $2.49.
With workers' compensation insurance premiums running about $12 billion a year, Jones' recommendation, if adopted by insurers, could cost employers more than $300 million a year.
"We cannot afford to set the pure premium rate based on over estimates of the potential reform savings that (Senate Bill) 863 will bring when insurers are already paying out more in claims than they are collecting in premiums," Jones said. "Today, companies are paying out 116 percent more in claims than they are collecting in premium. It's a recipe for history to repeat itself with a significant number of insurers becoming insolvent just a few years ago."
Earlier this year, following months of private negotiations between business groups and labor unions, the Legislature and Gov. Jerry Brown enacted a workers' compensation overhaul -- following the traditional pattern of the once-a-decade change in the multibillion-dollar system -- that increased cash benefits by an estimated $740 million a year while promising employers more than enough offsetting savings from systemic reforms.
Some medical care providers and workers' compensation attorneys opposed the changes because of the impact on their incomes while insurers continued to press their case for more premium revenue to offset operational losses, which they said were driven by rapidly increasing medical costs.
Jones' recommendation disregards a position by the Workers' Compensation Insurance Rating Bureau, an independent authority, that any change in pure premiums await the issuance of implementing regulations by the Brown administration and further analysis of the overhaul's effects. He concluded that while the overhaul will save money, its ability to fully offset the cost of the added benefits is not proven, thereby warranting a premium increase.
EDITOR'S NOTE: The headline on this post has been revised to remove an implication that Jones' action is responding to an official position of the insurance industry.