Has our workers compensation crisis really been avoided?

The short answer to the title question is both yes and no. Based on the decrease in premiums business owners have witnessed since 2004, I could answer a resounding Yes! These rate decreases have continued to occur each six months without interruption and in fact have been confirmed each January and again in July, when each insurance company's rates are released, having received approval by the department of insurance.

Due to the groundswell of support from the people of California and more specifically from business owners and the insurance lobby, our states legislature along with Governor Schwarzenegger helped us by signing into law SB899 in April 2004. This created a change in our state's business climate and dramatically improved the underwriting results of the California Workers' Compensation insurance companies. This is Big News when we remember that workers compensation had become a huge problem just a short time ago. In fact, fewer and fewer insurance companies were willing to participate due to the fact that it had become such a BIG time loser! During the late nineties and into the new millennia, workers' compensation companies were paying out an average of $1.45 in 'claims and expenses for every $1.00 in premiums they received from their clients! As our Insurance Commissioner rightly stated, our California Workers' Compensation system was indeed in crisis! Of course this created a crisis for others as well. Employers were paying exorbitant premiums with no viable alternatives and it became so bad that business owners were forced to cut benefits, incur layoffs or move out of state and many closed their doors altogether. It was a problem at every level and the insurance companies did not fair any better than the other businesses. Literally all workers compensation companies, even those who had stopped writing that coverage, had taken serious hits and over a dozen California companies were fatally wounded and became victims themselves.

But things are very different now! We're in a better place with the reforms and there is nothing to worry about, nothing but smooth sailing on the horizon, right? Let me put it this way: NOW IS NOT THE TIME TO BECOME COMPLACENT. With the dramatic reduction in rate and premium, any and all claims can now have a greater adverse affect on your company's loss ratio, the ratio between premiums and losses. With the dramatic reduction in premiums, you could have a 50% loss ratio one year and even if the total claims amount remained exactly the same in the second year, you could have an 82% loss ratio, simply due to your decrease inpremium. Now instead of being an attractive profitable account, it could border on being an unprofitable risk in the sight of the insurance companies. And to make matters worse, your experience modification is now starting to trend towards becoming a debit or surcharge and all this without an increase in overall losses! Now is definitely not the time to become complacent. Quite the opposite is true.

It is critical that you do everything possible to minimized losses, minimize loss severity, maximize safety awareness, utilize MPN benefits, manage claims effectively, incorporate wise hiring practices and utilize the services of an excellent trusted advisor for your insurance needs. Be wise, be profitable and be safe!

Tom Leman is Vice President of Sales for NIA Insurance Group. He can be reached at [e-mail].