Reporting from Sacramento — California Insurance Commissioner Steve Poizner rejected a call by industry financial analysts for a 28% increase in workers' compensation insurance premiums, which are paid by most of the state's employers.
Instead, Poizner, in one of his last major acts before leaving office in January, recommended that rates stay flat. He suggested that insurers could do much more to cut costs by adopting a number of reforms authorized by the Legislature six years ago.
"Our nation and our state are in the midst of a recession and unemployment rates are sky high," Poizner said Friday. "This is absolutely the wrong time for workers' compensation rates to increase.
"Even in a better economy, I still wouldn't budge on a rate increase without the industry first implementing the efficiencies we have recommended," he said.
Those recommendations from the state Insurance Department include ways to approve proposed treatments more quickly, resolve disputes over treatments more quickly and use coordinated networks of healthcare providers more often.
Even without those changes, which are aimed at curtailing costs, California insurers continue to post strong profits, Poizner said.
Insurers countered that Poizner was confusing profit, some of which is generated by investments of surplus capital, with a recent uptick in the cost of providing medical care and disability benefits to victims of on-the-job injuries.
"Pointing out profits is the wrong way to go," said Steve Suchil, assistant vice president of the American Insurance Assn. "All workers' compensation payers and employers are facing similar cost pressures. The issue is the underlying costs."
He noted that insurers last year paid out $1.24 in losses and expenses for every $1 in premiums they took in. Five years earlier, that "loss ratio" was 54 cents per dollar of premium.
Employers, meanwhile, paid $2.36 per $100 of payroll costs last year, compared with a record high of $6.44 in 2003 before the Legislature approved a landmark overhaul of the multibillion-dollar system.
Though Poizner's disapproval is not binding on California's 207 licensed workers' compensation insurance providers, his recommendations are generally heeded by the major carriers.
Indeed, most of the 28 companies that already have submitted rate requests for next year are seeking increases of 2% to 3%, Poizner said.
California's largest workers' compensation carrier, the government-backed State Compensation Insurance Fund, is seeking a 5.2% overall rate increase in 2011. The company, known as State Fund, serves as the insurer of last resort in the mandatory workers' compensation system, with 180,000 customers and $1.3 billion in premiums.
State Fund's rate increase reflects its special mandate and the fact that, as a quasi-governmental agency, it cannot cut expenses as quickly as private-sector insurers, Poizner said.
Nevertheless, he noted that State Fund and the entire industry must act more aggressively to lower costs, particularly in the areas of prescription drugs and claims handling.
"Until I see evidence that all these cost-containment reforms are implemented and efficiently addressed, why on earth would I want to play any role in providing any cover to allow workers' compensation insurers to raise rates?" Poizner said.