Workers’ Comp. Insurance Under Scrutiny

By Loretta Macktal, Executive Assistant to the Vice President, Government Relations

Capitol Update, March 18, 2005 Share this on FacebookTweet thisEmail this to a friend

The passing of SB 899 (Chuck Poochigian, R-Fresno) was the workers’ compensation highlight of the 2004 legislative session. These historic reform measures should provide changes that will bring California’s workers’ compensation costs more in line with the rest of the nation. The changes are also expected to bring healthy competition among insurance companies for employer premiums.

Ordinarily, after the passage of a comprehensive workers’ compensation bill, the legislature is unwilling to deal with anything more than clean up during the following year. This year is different. 2005 is shaping up to be an active session. Over three dozen workers’ compensation bills of significant interest to manufacturers have been introduced including several spot bills that are expected to move through the legislature.

Two bills, SB 639 and SB 46, both authored by Senator Richard Alarcon (D-Sun Valley), are being closely monitored by CMTA.

SB 639 looks to expand the use of occupational classes for smaller employers. It would amend Insurance Code 11734 to require that a classification system developed by the Insurance Commissioner, a rating organization, or an insurer take into account the numbers of employees in specifically defined occupational categories. At the same time it prohibits the classification of an employer solely on the industry in which it operates. For example, where a non experienced rated manufacturer has 15 total employees – 11 welders/operators/maintenance, a foreman, a general manager, and two clericals – all would be classified under the highest industry code for welders. But under SB 639, the general manager and 2 clericals would have to be classified separately and probably at a lower rate. CMTA supports this provision because it addresses a constant complaint by small manufacturers.

This bill also seeks to modify Insurance Code 11736. Current law requires experience modifications to be based on a comparison of actual incurred losses to payroll for a specific occupational class. This ratio is then measured against an industry-expected incurred loss amount for that occupational class and payroll amount to determine if losses are better or worse than expected. SB 639 would change this calculation to a comparison of the actual number of claims to expected claims for a specific occupational class, related to payroll. CMTA is concerned with the potential for sudden large swings in experience modifications and we will be discussing these issues with the author.

SB 46 is focused on regulating workers’ compensation rates. Rates must be filed with, and approved by, the Insurance Commissioner. This bill would require that workers' compensation rates not be "excessive, inadequate, or unfairly discriminatory". The bill would establish the Commission on Workers' Compensation Rate Regulation, which would be responsible for setting pure premium rates, adopting a uniform experience rating plan, issuing minimum and maximum expense multipliers to be used by insurers, and hearing appeals of rate decisions, as specified. The commission would be composed of the Governor, the Attorney General, and the Insurance Commissioner, or their designees. CMTA is looking into the effect this might have on the insurance industry and the impact it might have on expanding the number of insurers willing to write workers’ compensation insurance in California.

The bill also enhances the experience modification plan to allow an employer to obtain a certificate of merit based upon the employer's safety program. It would require that insurers provide a credit in a specified amount to an employer that earns a certificate of merit. The certificate of merit would be achieved through superior loss results. Additionally, the bill also requires insurers grant a credit to an employer that provides health insurance to its employees, as specified, and a credit to an employer that has not had a claim during the previous two years.

Similar to SB 639, SB 46 also addresses occupational classifications and prohibits a workers' compensation insurer from classifying a policyholder based solely on the industry in which the employer is involved. SB 46 requires that an insurer, upon request of the insured, classify employees in separate operations differently.

CMTA could support many of the provisions that pertain directly to employers with further clarification. However, there is concern about some of the negative effects on insurers that could be passed on to employers in the form of increased premium costs.
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