Commissioner hails workers' comp price cuts; department monitoring solvency, fraud-fighting programs.

SACRAMENTO, Calif.--(BUSINESS WIRE)--Feb. 27, 1995--"The good news is that workers' comp rates have gone down dramatically," Insurance Commissioner Chuck Quackenbush said Monday. "Once again we see that market forces can produce the best deals for consumers.

"But open competition does have some risks. The price of insurance should be tied to its cost, not simply to what the competition charges. It's great to see rates drop, but my job as a regulator is to make certain that insurers are able to serve consumers who file legitimate claims.

"While it is too early to know the exact effect competition is having on the health of insurance companies, the Department is putting the institutional pieces into place so that it can move quickly and efficiently to prevent insolvencies that could result from cutthroat pricing."

Testifying before the Joint Committee on Workers' Compensation, Commissioner Quackenbush also said he is concerned about "anecdotal evidence that workers' comp carriers are cutting back on fraud-fighting programs. As open rating drives carriers to search for short-term cost reductions, the Department will not tolerate reductions in the Special Investigative Units (SIU's) that play a critical role in the fight against insurance fraud."

The Commissioner updated the Committee on the activities of the Insurance Department's Fraud Division, which received a "tremendous boost" in its fraud-fighting capabilities after the passage in 1991 of Senate Bill 1218 (Presley). With increased funding and support from the Legislature, the number of investigators assigned to investigate workers' comp fraud has increased from 16 in 1992 to 64 this year.

Currently, the Fraud Division has more than 800 investigations in progress. In the past six months, the Fraud Division has made almost as many arrests (103) as in the previous fiscal year (116). In 1994, district attorneys reported 252 convictions.

Insurance Department regulations require insurance companies to operate Special Investigative Units, which work in partnership with Insurance Department fraud investigators and local district attorneys. While carriers were found to be 98 percent in compliance with the regulations last year, reports at a recent Fraud Assessment Commission hearing indicated that some are either in non-compliance or reduced compliance.

"Scaling back on SIU activity might save money in the short run, but it will punish employers with higher rates in the long run," the Commissioner warned. "The Department will enforce these SIU regulations and initiate steps immediately that will lead to full compliance."

Among the measures the Department can take to enforce the regulations are audits and hearings for insurers that continue out of compliance.

The Insurance Department's legislative agenda this year includes three specific recommendations, all of which will further crack down on fraud and produce cost savings for employers. Commissioner Quackenbush said he is sponsoring Senate Bill 247, authored by Senator Steve Peace, that will guarantee that all money assessed to fight workers' comp fraud is used for that purpose.

"The fight against fraud will remain strong if the Legislature maintains its funding commitment. However, anti-fraud efforts are hurt when money collected from employers to fight fraud goes unappropriated by the Legislature and is diverted to the General Fund. This amounts to a tax on the state's employers and must be prevented."

The Commissioner will also support Assembly Bill 854, authored by Assemblyman Bill Hoge, that will change the Penal Code to allow Insurance Department fraud investigators to conduct undercover investigations. Quackenbush also asked the Legislature to replenish the undercover operations fund, created by the Legislature and Governor last year.

Commissioner Quackenbush assured lawmakers that the Department possesses the authority, resources and technology to monitor insurance company solvency. "Our Financial Analysis Division routinely monitors the quarterly and annual financial statements that insurers must submit to the Department.

"A host of other financial information is reviewed on an ongoing basis including independent audit reports, rate changes issued by financial analysts, premium to surplus ratios, loss ratios, combined ratios, cash flows investments and other critical factors. All of this information is analyzed specifically to determine if there are any signs of solvency problems.

"Aside from this routine examination function, the Department has implemented an `early warning' system, which is designed to spot financial trouble at the earliest opportunity so that we can work with a company to avert insolvency. This is crucial to cope with the changes of open rating," the Commissioner said.

Commissioner Quackenbush has formed an internal task force to coordinate and focus the work of the Department as it monitors marketplace changes under competitive rating. The task force requested and has obtained "enthusiastic support" from the Workers' Compensation Insurance Rating Bureau, which will provide detailed data on a quarterly basis. This information will augment the Department's efforts to identify companies with financial circumstances that warrant special attention.

CONTACT: California Department of Insurance 

Richard Wiebe, 916/445-5544