Fresh round of workers' comp hikes imminent. (Up Front).

Another round of workers' compensation premium rate increases is due to hit starting next week, marking the second year in a row that rates are going up at mid-year.

Officially, the rate increase on premiums renewing after July 1 has been pegged at 7.2 percent by state Insurance Commissioner John Garamendi, following a 10.5 percent rate hike in January. Adding in the 10.2 percent mid-year increase last year, official rates have gone up 30 percent in just over 12 months.

But rate increases are, in reality, much higher because Garamendi's suggested rate increases only cover the cost of claims, not insurers' overhead or investigative fees or other premium surcharges that insurers typically tack on to premiums. Taken together, these additional costs typically add another 5 percent to 20 percent to premiums, depending on industry type and claims histories.

"Annual premium increases of 50 percent to 100 percent are typical for my clients," said insurance broker Fritz Mutter, president of Golden Pacific Insurance Services in Monrovia. "A 25 percent increase is really good, and I guarantee you that almost no one is seeing the combined 20 percent increase that Garamendi has recommended over the past 12 months."

One business expecting to see a huge jump is Cerritos-based Insta Graphic Systems Inc., a print shop serving the apparel industry.

"Our rates are going up on July 1 and, although we haven't seen the bill yet, our insurance carrier has told us our annual premium will likely double, from $180,000 to just over $360,000," said Janet Wells, a co-owner of Insta Graphic.

Employers squeezed

Wells said her company has had some claims filed against it over the last year, including a $98,000 bill for repair of a torn thumb ligament.

"The medical costs are totally out of control and the employer has no say on these costs. We're just told to pay up," Wells said.

Making matters worse, Wells said, is that her biggest customers are asking her to cut her prices as much as 20 percent.

"This is a very serious problem," Wells said. "Since we've already laid off as many people as we can and still keep the press going, we've got three choices: sell the business, move out of state or close entirely."

Wells said this latest increase would push her workers' compensation costs to about $6 per $100 in payroll, double the level of last year. But that's hardly out of line with what other companies are experiencing. The statewide average premium for the first quarter was $5.80 per $100 of payroll, according to David Bellusci, senior vice president and chief actuary for the state Workers' Compensation Insurance Rating Bureau.

Three years ago, the rates were half that amount. The run-up has been the fastest in state history, Bellusci said.

"I wouldn't be shocked to see that figure reach $7 per $100 payroll by the first quarter of next year," Bellusci said. That would bring the cost in California to nearly double the next-highest premium rate in the country.

Driving the increases have been runaway medical treatment costs, extensive litigation, a deregulated insurance market that came near collapse last year and three successive annual benefit increases that Gov. Gray Davis signed into law last year.

However, a new factor has come into play with this round of increases. The state's largest insurer, State Compensation Insurance Fund, is coming under increasing state scrutiny as it has grown to include about half of the overall state workers' compensation insurance marketplace. To stem that growth and forestall what some feared would be a collapse of the fund, Garamendi in April ordered State Fund not to accept new customers unless those customers can prove three private insurance carriers rejected them.

"This is giving tremendous market power to some private insurance carriers," Mutter said. "They can charge any price and the employer has to pay it. That's because, if an offer of coverage is given to an employer, they must accept it. I'm seeing this happen with some of my clients right now."

Making matters worse, medical treatment and litigation costs are escalating so rapidly that Bellusci said the rate increase Garamendi has recommended wouldn't even come close to covering them.

Keeping up with costs

Originally, Bellusci said, the Workers' Compensation Bureau recommended to Garamendi that premiums be boosted 10.6 percent for the second half of 2003. But actuaries within Garamendi's office looked at the same data and came up with a more conservative estimate of the cost increases, said Garamendi spokesman Norman Williams.

After the Workers' Compensation Bureau came out with its recommendation in April, more cost data came in, Bellusci said.

"We now estimate that for the second half of this year, costs will increase about 22 percent," he said. "Since the Insurance Commissioner has recommended a mid-year increase of only 7 percent, that leaves an increase of about 15 percent that will have to be accounted for at the end of the year, when the regularly scheduled premium recommendation comes."

A package of reform bills backed by Gov. Gray Davis is moving through the Legislature and considered likely to pass. The centerpiece of the package is a bill to cap fees charged by outpatient clinics; proponents say this will go a long way towards reducing workers' compensation costs.

But critics say the package doesn't go nearly far enough, since the bills don't attack the thorny issues of classifying injuries and determining workplace causation.

Whatever legislation does pass, it won't take effect until next year at the earliest. That leaves employers to feel the full brunt of yet another round of premium hikes.