California insurers taking a wait-and-see attitude toward reforms

Workers' comp carriers are keeping their fingers crossed about the anticipated savings from the reform legislation. Signed by Gov. Edmund G. Brown Jr., S.B. 863 addresses several cost-driving issues in the workers' comp system.

The problem, according to insurers, is that while increased benefits to injured workers are immediate and certain, the savings for employers are dependent on their implementation. In the meantime, employers likely will not see significant, if any, rate reductions.

According to a preliminary assessment of S.B. 863 by the California Workers' Compensation Insurance Rating Bureau, the measure "would reduce overall system costs by 4.5 percent, or $860 million in 2013, and following an increase in permanent disability benefits in 2014, the combined impact of all the currently quantifiable SB 863 provisions would reduce system costs by 1.4 percent or $270 million annually beginning in 2014." That is less than insurers were hoping to see.

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"While S.B. 863 contains many beneficial reform components that address many well-documented cost drivers, its projected savings are minimal," said Marjorie Berte, western regional vice president for the American Insurance Association. "Reduction of system costs by 1.4 percent can be seen as a good start, further savings must be found. Meaningful reforms that will lead to meaningful reductions in system costs are required."

The WCIRB will continue to consider the potential impact of S.B. 863. Members of the Actuarial Committee and the Claims Working Group will focus specifically on portions of the bill pertaining to independent medical review, the elimination of the future earnings capacity factor for permanent disability ratings, and medical provider networks before finalizing a recommendation for an amended pure premium rate filing for January.

The implementation of the cost driving issues is key to any savings. "Quick and appropriate implementation of the regulations called for in the bill are vital to realizing savings," according to the Association of California Insurance Companies, a subsidiary of the Property Casualty Insurers Association of America. The association compared the evolving reforms to a football game where the signing equates to halftime.

"We may be ahead going into the locker room at the half, but the game can change quickly and in the wrong direction if the regulatory process does not garner the necessary balances and controls expected from this bill," said ACIC president Mark Sektnan. "We must use this second half in the regulatory process to close loopholes and shut down the entrepreneurial element that works around boundaries and causes new systemic cost drivers. S.B. 863 may not decrease employer costs. However, this important bill should slow the cost increases."

As some insurers have said privately, they are reluctant to cut rates based on only the possibility of savings at some point in the future. "It will take the full implementation of S.B. 863 in 2014 before we can determine whether or not any cost savings are actually realized and how those savings will impact the marketplace," said AIA's Berte.

Read more at the WorkersComp Forum homepage.

October 15, 2012

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