MONEY LOSER?

“Workers’ comp insurance becomes money loser”……

That’s the title of a piece released today by Dan Walters, veteran political columnist of the Sacramento Bee.

Walters is widely admired in Sacramento and other political circles for his decades of experience as observer of the California scene.

Among the points made by Walters:
-in 2006, insurers earned nearly 27% on employer paid premiums of $17.3 billion
-premiums dropped to $9.1 billion in 2009

Walters essentially notes what I’ve been saying for some time.

Insurers reaped record profits in the early years after the 2003 & 2004 California comp reforms. Benefits paid to or on behalf of workers during those early years were a pitiful percentage of premium paid by employers.

Then came the housing crisis, the fall of Bear Stearns and Lehman and AIG, the tanking of the economy, and soaring unemployment.

As premium has declined (in large part because of a weak economy), costs have risen, especially medical costs.

In a number of other posts I’ve noted that cost containment and overhead expenses have risen sharply as a percentage of premium written.

So there’s been less margin, leading the Schwarzenegger DWC to refuse to comply with the statutory mandate to revise the permanent disability rating schedule to increase benefits.

Meanwhile, benefits for workers with permanent disabilities were cut.
Using figures from a WCIRB 2008 Legislative Monitoring report, intended statutory reductions in permanent disability reduced permanent partial disability payments by $600 million. This included reductions due to changes in the law of “apportionment”, PD reductions for a “return-to-work adjustment”, and reductions in the number of weeks of disability paid out for many injuries.

Moreover, worker attorneys charge that PD benefits have been effectively cut by the 2005 permanent disability rating schedule and the refusal to amend the PDRS.

But as time went on, industry profits have been squeezed.

Citing the recent report from the Workers’ Compensation Insurance Rating Bureau, Walters notes that “…insurers lost $1.5 billion on workers’ compensation insurance policies last year after breaking even in 2008.”

Walters acknowledges that insurers have been clamoring for rate increases. But Insurance Commissioner Poizner refused to recommend rate increases, and most insurers have been loathe to raise rates very much. Walters notes that there will be a new Insurance Commissioner elected in 2010.

Walters predicts that the stage is set for more workers’ comp battles in the future, “making it a key, if little known, aspect of the gubernatorial duel” in the current Governor’s race.

The WCIRB report, “2009 California Workers’ Compensation Losses and Expenses” can be found here:
https://wcirbonline.org/wcirb/resources/data_reports/pdf/2009_loss_and_expenses.pdf

Stay tuned.

Julius Young
www.boxerlaw.com

Category: Understanding the CA WC system