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Thursday, Feb 22, 2024

Firms Getting a Break on Workers’ Comp Rates

While liability and health insurance costs continue to rise for businesses, workers’ compensation rates could continue leveling off in 2006, say industry leaders.

And that’s good, says Sam Sorich, the president of the Association of California Insurance Companies, because, “From a business standpoint, it’s the most important insurance.”

Sorich said the market has significantly improved for employers as well as insurance companies because of reforms passed in 2003 and 2004, and that it will continue to do so in 2006.

The legislation, sponsored by Gov. Arnold Schwarzenegger, granted self-insured employers and insurance carriers the option of establishing medical provider networks to treat employees injured on the job. It also mandated standards and independent review processes for assessing injuries and changed the rate schedule by which employees are compensated.

As a result, Sorich said premiums have been reduced by about 35 percent since the reforms were enacted.

In 1999, insurance companies were paying $1.39 for every $1 they received in premiums, he said, and today, they are making a profit.

But Sorich said labor unions argue that the reforms “went too far by depriving injured workers of care they need.”

Essentially, Sorich said, employers pay less because employees get less compensation when injured.

“Is every employer happy? No,” he said. “But generally, the rates have gone down.”

Andrew Barile, the chief executive officer and president of Rancho Santa Fe-based Andrew Barile Consulting Corp., Inc., said businesses will continue in 2006 to put pressure on insurers to drop workers’ compensation rates.

Companies employ Barile to advise them on insurance operations and policies.

“Workers’ compensation will always be subject to controversy in California because it’s a $20 billion market,” Barile said.

California Insurance Commissioner John Garamendi has recommended that carriers decrease rates by 15.3 percent for policies renewing and starting Jan. 1.

Alan Schaffer, a commercial insurance specialist with San Diego-based Vanorsdale Insurance Services, Inc., said, “In some recent cases, I have been able to place workers’ compensation for San Diego businesses at half the price of what they paid the previous year.

“The insurance carriers have been extremely aggressive with their pricing,” he added.

Some argue that it was the reforms that increased competition with at least three new carriers having entered the market in the last two years, including the California Insurance Co. and Warren Buffett’s Berkshire Hathaway subsidiary, National Liability and Fire Insurance, according to the Pacific Research Institute.

Barile predicts other types of insurance for businesses will rise, and that in any instance, companies tend to rely too much on agent brokers and must start trying to understand policies themselves to know what is best for their bottom line and business strategy.

He said some larger San Diego companies are starting captive, or offshore, self-run and owned insurance policies. Barile said when a company feels insurance is getting too expensive, captive becomes an alternative.

He said he couldn’t say which local firms are pursuing such policies because “lawyers see deep pockets.”

“It’s an active industry,” Barile said. “It’s just not as visible.”


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