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Garamendi Plans to Cut Rate for Workers' Comp : Insurance: Exact reduction for employers will be decided after July 21 hearing, he says. The idea draws mixed reactions.

June 03, 1993|STUART SILVERSTEIN | TIMES STAFF WRITER

Pledging to save California employers $500 million to $1 billion a year, Insurance Commissioner John Garamendi said Wednesday that he intends to slash the base rate for workers' compensation coverage by an estimated 7% to 10% this summer.

Garamendi, who said the exact reduction in rates will be decided soon after a public hearing on July 21, explained that his plans were prompted by a recent sharp drop in costly workers' compensation claims.

"These savings should be reaped not by the insurance companies, but by the businesses that have paid sky-high premiums for too long," Garamendi said at a news conference in downtown Los Angeles. "The hundreds of millions of dollars we can free up from this bloated system should go back into the pockets of employers to help stimulate our battered economy."

Along with drawing predictable applause from employers and criticism from insurance interests, Garamendi's announcement triggered charges of grandstanding and stirred the complicated politics of workers' compensation reform in Sacramento. A Senate-Assembly conference committee is reviewing proposals to revamp California's system, which is widely criticized for its comparatively high costs for employers and low benefits for seriously injured workers.

Backers of various cost-cutting measures expressed fears that their opponents would try to exploit Garamendi's announcement to lobby against reforms. Louis A. Custrini, vice president of the Merchants and Manufacturers Assn., called the anticipated rate cut "a significant step, but it certainly should not be understood as the panacea for the workers' compensation problem."

Custrini said even though fraud and abuse have been reduced, the Legislature still needs to curb medical charges, litigation and costly psychological stress claims.

But groups representing doctors and lawyers for injured workers countered that many of the measures advocated by employers and insurers are unfair to people who deserve help.

They added that Garamendi's announcement demonstrates that "the system is not entirely out of control, and the most restrictive controls are not the ones to take," said Lloyd B. Rowe, president of the California Applicants' Attorneys Assn.

Since late 1991, Garamendi has curried favor among employers by reducing or denying insurance industry proposals for workers' compensation rate increases. Most recently, in November he set aside a proposed 12.6% rate increase, saying that insurers failed to provide consistent financial evidence that an increase was warranted.

The anticipated 7% to 10% rollback in rates stems from a recently disclosed preliminary report that California insurance companies will spend an estimated $6.5 billion to compensate employees for on-the-job injuries suffered in 1992--a $1-billion decline from the previous year's total.

Among other factors, experts have cited reduced fraud and the weak job market for the drop in injury claims.

Garamendi said his department needs to evaluate the preliminary report further and is required by law to hold next month's hearing to gather testimony from the insurance industry before he can impose a rollback.

If the preliminary figures showing the $1-billion improvement hold up under further review, he said, the 7% to 10% rate reduction would be quickly passed along to employers.

Barry Carmody, a senior vice president and lobbyist for the Assn. of California Insurance Cos., urged Garamendi to "go slowly with any rate reduction."

He noted that early figures for 1992 show weak profit for the insurance industry.

"You could throw California into a heck of a tailspin" if rates are reduced sharply and the financial markets grow worried about the health of California's insurance companies, he said.

James E. Little, president of Fremont Compensation Insurance Co., accused Garamendi of "political grandstanding" and trying to grab credit for a rate rollback. He said a rate reduction of about 5% was widely anticipated in the insurance industry as part of a routine adjustment stemming from the drop in injury claims.

Garamendi also came under criticism from state Sen. Patrick Johnston, the Stockton Democrat serving as co-chairman of the Legislature's workers' compensation conference committee.

Johnston said the insurance commissioner's announcement was timed to blunt efforts to rewrite California's "minimum rate" law.

The law establishes a floor on how much workers' compensation insurers can charge employers, and is believed to indirectly subsidize small firms at the expense of larger ones.

Yet critics also say the law limits price competition among insurers, translating into higher premiums throughout the market.

Garamendi could not be reached to respond to Johnston's criticism.

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