Workers' comp rates drop, but savings remain limited.

When Gov. Arnold Schwarzenegger signed a sweeping workers' compensation reform package in April, there was widespread expectation that employers would see major drops in their premiums starting July 1.

So far, the savings have been much more modest. Many employers who renewed their policies this month have seen single-digit decreases in their premiums; a few in high-risk industries have even seen their rates continue to climb.

"Our clients renewing on July 1 are seeing their rates go down 5 percent to I0 percent," said Margaret Gilmore, senior vice president of Golden Pacific Insurance Services in Monrovia. Those in high-risk industries such as construction are still seeing their rates go up, though not nearly as much as before, she said.

Companies renewing before the July 1 cut saw their rates skyrocket. "I had a client whose renewal date is June 30 and they got hit with a 40 percent premium increase," Gilmore said. "We had tried to prepare them a little, but they were still shocked."

This is a far cry from the 20 percent or more in rate cuts forecast by state Insurance Commissioner John Garamendi and legislators who have crafted two sets of workers' comp reforms in the last year.

Last week, Garamendi said workers' compensation insurers had filed for rate reductions averaging 10.4 percent, half what he had recommended in April.

That compares with the 20 percent and 30 percent rate increases that were commonplace last year. So most companies are still paying higher premiums today than they were in June of last year.

"We may be finally moving in the right direction, but there's no question rates have not gone down as much as expected," said Mario Guerra, president of Scanlon-Guerra-Jackson-Burke Insurance Brokers of Woodland Hills.

State Fund's role

One factor in the small size of the decrease was the State Compensation Insurance Fund, the quasi-public insurer that controls more than half the workers' compensation insurance market. In May, State Fund filed for a 9.7 percent decrease on policies renewing after July 1, a smaller decrease than the average of 14 percent reported by private carriers.

The State Fund filing prompted a rebuke from Garamendi, who then bad a report commissioned detailing further cost savings that State Fund could implement that would result in another 6 percent in premium cuts.

State Fund spokesman Jim Zelinski said the carrier was reviewing Garamendi's report. "If there are any measures in the report that will result in concrete, practical and quantifiable savings, we will implement them," he said.

Yet even the 10 percent average decrease in insurer rate filings is misleading; the reductions actually seen by employers tend to be somewhat smaller.

Insurance industry representatives say that's because the filings represents the "pure premium" rates before other factors are considered, such as the industry an employer is in, the employer's short-term and long-term experience with injury claims, and whether the company has implemented all appropriate safety programs.

Companies in traditionally high-risk industries--including construction, hospitals and temporary staffing--are least likely to see significant reductions. Also, companies that have seen a spike in claims during the last couple years are likely to see their rates go up.

"Now, even more than ever, the companies with spotty or bad track records when it comes to safety and claims are suffering the most," said Mark Zwickel, executive vice president for commercial insurance lines with the L.A. office of Lockton Insurance and Risk Management.

But critics of the insurance industry say it is not passing on savings to employers and are using this as a rallying cry for rate regulation.

"Insurers are gaming the system," said state Sen. Richard Alarcon, D-Van Nuys and chair of the Senate industrial relations committee. He said insurers are frequently adjusting companies' claims experience ratings higher, so as to reduce the size of the rate cuts they grant to employers.

Adjusting for past claims

Insurance industry representatives deny manipulating employer records.

"What people don't realize is that it truly is a case-by-case evaluation of a company's record," said Mike Mattoch, a lobbyist with the western region office of the American Insurance Association in Sacramento.

Mattoch added that insurance companies are being cautious in cutting rates until they see how the recently passed reforms play out.

"Insurers are looking at the experience 10 years ago, when they cut rates steeply only to find that claims costs were still rising," he said. "That's what created alt the chaos in the marketplace we've seen over the last few years."

He also said the industry is awaiting the fate of cleanup measures now moving through the Legislature to address technical flaws in the reform package; insurers want to see how state regulators draw up the specific rate schedules called for in the reforms.

Whatever the reason, Alarcon said he plans to hold hearings in his committee on this issue in the next several weeks.

In the meantime, insurance brokers and insurance industry representatives say they expect a steeper series of rate cuts for those employers renewing after next Jan. 1.

[GRAPHIC OMITTED]