The decreases indicate that employers should see lower workers' compensation premium bills as workers' comp claims costs continue to plummet. However, the industry's premium reductions still lag far behind the cumulative pure premium rate decreases (claims costs) recommended by the commissioner since the reforms went into effect in 2003 and 2004. Since then he has recommended reductions of -36.5 percent in the pure premium rate, while the industry has made reductions of just -26.78 percent during that same period.
"Employers have received some much needed relief," the commissioner said. "But it hasn't come fast enough, and it doesn't reflect the tremendous savings to insurers from the reforms."
AB 227, SB 228 and SB 899 were significant pieces of legislation modeled on the Commissioner's Roadmap to Reform, which helped cut at least $5 billion annually from the workers' compensation system. They went into effect in 2003 and 2004, reversing the upward trajectory of workers' compensation costs that were strangling businesses across the state.
As insurers have implemented the reforms, their loss ratios - the amount they pay for claims compared to premium - has dropped from 87 percent in 2002 to just 41 percent in 2005 - an unprecedented reduction in the cost of claims. The intent of the reforms was to release employers from the burden of these costs, stated Garamendi, and insurers must lift that burden.
In addition to the Commissioner's -36.5 percent cumulative pure premium rate reduction, the Workers' Compensation Insurance Rating Bureau has recommended a further -5.2 percent pure premium rate reduction to take effect on January 1, 2006. The Commissioner will hold a hearing to determine whether to adopt the recommendation on September 16, 2005.
"The plummeting cost of claims has clearly benefitted insurance companies," said Garamendi. "Now, California's small businesses deserve immediate, mid-term premium reductions from their insurance carriers. They shouldn't have to wait until they renew their policies."
Insurance broker concurs
Fred Stafford, executive vice president of Barlocker Insurance Services - a specialist in insuring auto body shops - spoke to the effect of the latest regulations on the insurance companies. "We have seen soft market conditions in the workers' compensation area for the past year. S.B. 899 was a causative agent for the first meaningful bipartisan reform in quite some time."
He explained that in the '90s businesses were leaving California in droves for two major reasons: government bureaucracy and the high cost of workers' compensation insurance. At that time, California was a minimum rate state, meaning that the DOI set a minimum rate and no one could charge less, thus ensuring that the carriers would always be liquid and solvent. There were adequate reserves and a net profit for the insurance companies.
However, at about the same time, changes were made that led to a more liberal claim environment, ultimately leading to the insolvency of the insurance companies. For a time, employers had a heyday with the artificially low rates, but ultimately the system overburdened all the parties involved.
Workers' compensation reform was a priority for Governor Arnold Schwar-zenegger and he demanded changes when elected. New legislation appears to have stabilized the claims environment and makes the picture of tomorrow much clearer in the minds of the actuarials and insurance companies.
Stafford believes that "everything is aligned. Quarterly numbers look phenomenal. Loss frequency is down. Average insurer rates continue to decrease. Rates have been steadily coming down for two years now and we can really see it. With reductions of 15 to 25%, more insurance companies are in play. In addition, some of the underwriting disciplines have changed; there is less scrutiny in terms of quality of risk."
"Shops should take advantage of the eased up standards to qualify for policies. This is a great time for body shops," emphasized Stafford. "There really is a light at the end of the tunnel.
"Furthermore, when prices go down, relationships are better all around. Rate reductions improve business. There is a more upbeat, more vibrant flavor in the community. Insurance is a planning tool. When premiums gyrate up and down rapidly it hampers the ability to plan for the future. An elongated plateau that is relatively low is good for carriers and customers alike."
Is it trickling down to shops?
So, is it really happening? As is often the case, there are mixed results.
Greg's Collision Center in Bellflower reports that their rates have gone down almost 20% - from $4,900 per month to $4,000. Greg's has a favorable loss record with only two claims in 25 years. With one of those claims recent, the Castros expected rates would skyrocket, instead they went down.
Sandy Solis, co-owner with husband Rich of Solis Collision Center, Cameron Park, was pleased that not only did their rates not go up, but they did go down some. Of course, she hopes that the rates continue to drop.
A similar situation exists at G&S Collision & Paint, Sacramento. According to owner Tom Mainwaring, rates at his shop have gone down just over 10%.
Gail Bell, co-owner of Bell's Auto Body Werks, Costa Mesa, agreed that their rates had gone down beyond their multi- company discount, but not enough.
On the other end of the spectrum, Emil Saffouri, owner of three body shops in Bakersfield, stated that he had not seen any reductions as yet and that the high cost of WC insurance makes it very difficult on owners of small, independent shops.