Public hearing set for this week on redo of workers' comp regulations.

This week, state Insurance Commissioner John Garamendi will hold a public hearing to listen to comments about a new set of regulations regarding workers' compensation insurance.

The new law, set to go into effect Jan. 1, 1995, eliminates the minimum rates that workers' comp insurers charge businesses for coverage. Last year, the California Legislature passed a series of laws aimed at lowering workers' comp rates after employers complained that the cost burden was a major obstacle to running a profitable business in the state of California.

The new regulations to implement that law are aimed at getting employers' workers' comp insurance rates down to manageable levels. Also, they are likely to shake up the workers' comp insurance carriers, with a wave of consolidation hitting the industry as increased competition squeezes out smaller carriers. Additionally, workers' comp carriers that left the state may return as a result of the regulatory changes.

Effectively, California is going from being the most regulated to the least regulated state in terms of its price controls, said Jim Little, president and chief executive officer of Fremont Compensation Insurance Co. Fremont is headquartered in Glendale and is one of the largest workers' comp insurers in California.

"I think it is safe to say that we will see some of the old faces back again," said Little.

He added there was an exodus of workers' comp carriers from California during the late 1980s and early 1990s. Most were fleeing what they considered an over-regulated market.

Additionally, Little predicted the new rate rules will spur takeovers and failures of smaller carriers. Rates are now governed by a "minimum rate law" under which there is a floor below which workers' comp insurers cannot not lower rates. So, most insurers charge the same rates.

The floor will disappear which, Little said, will make it harder for the little guys to survive. Although there is no minimum rate that has to be charged, the state Department of Insurance still will have to approve the rates to ensure that companies don't price policies so low that it puts their own solvency at risk.

In fact, the public hearings this week will focus on the issue of filing rate-request forms with the Department of Insurance. Some insurers are baffled by the state's requirement to notify the Department of Insurance of the rate they will charge for workers' comp coverage.

Jeff Fuller, a lobbyist for the Association of California Insurance Cos., said the regulations should not exist because in market competition it would not be necessary to get rate approvals from regulators.

The Department of Insurance, however, would only get involved if low rates threatened a company's solvency.

"Carriers as of January 1995 will file their rates and they can use them," said Milo Pearson, chief of the Department of Insurance's rate regulation division. "The new regulations do nothing more than tell them how to make a rate filing."

Fuller disagreed. He said the rate filings give the insurance commissioner three options for rejecting rates insurers want to charge. "The department is only supposed to be able to reject them if it threatens solvency or creates a monopoly," said Fuller. "Now the commissioner can disapprove a rate filing if it is incomplete. And there is no hearing required," as there is if the department opposes an insurer's rates on the basis of solvency or monopoly considerations.

"The problem with this (giving the commissioner power to reject rates due to an incomplete filing) is that it is subject to abuse," said Fuller.

Little disagreed: "Most of the rate filings that go in this year will go through because they will be lower than current rates. I think the Department of Insurance wants to get carriers into the market."