Workers' comp sits atop governor's new year agenda.

Insurers say ways must be found to pass reforms

Gov. Pete Wilson wants to pass a workers' compensation reform package in the winter or early spring of 1993 and he may be willing to compromise on issues such as stress and workers' benefits, Lloyd W. Aubry, Jr., director of the Department of Industrial Relations told the Business Journal.

One of the major disappointments in insurance in 1992 was the Legislature's inability to pass a workers' compensation package that Wilson would sign to reform the costly, fraud-ridden $11 billion a year state system. But in 1993, there is a chance that there will be reform, according to political insiders such as Aubry and Sen. Art Torres, D-Los Angeles.

In the last few weeks of 1993, Wilson's staff has been meeting with "key" members of the legislature about a reform package, Aubry said. Among issues discussed in the meetings was the sticking point of last years' reform package - Wilson's contention that benefits should not be increased to workers until $1 billion in savings to employers can be verified, Aubry said.

When asked if Wilson might be willing to compromise on the benefits issue, Aubry said, "I think that's a fair statement." Aubry added that the governor's position has previously been "portrayed as being more rigid and hard-line on specifics of the plan" than it actually was.

Aubry said the governor's positions were based on the fact that Democrats had previously not offered "any alternative" way of saving money in workers' comp. Aubry declined to say if the Democrats were now offering an alternative, asserting that discussions were in a preliminary stage.

Sen. Torres, chairman of the Senate Insurance Committee, predicted Wilson and other Republicans may be more willing to compromise on workers' comp this year and there may be a package passed as early as February 1993.

Torres said the governor may be willing to increase workers' benefits in a new plan in 1993, as well as bending on other issues, noting that the governor is up for re-election in 1994.

Wilson also had counted on getting more Republicans elected in November, but "the governor suffered a significant setback in the election," Torres added.

Aubry conceded the election "didn't turn out the way" Wilson wanted. He said there is a lot of pressure for workers' comp reform early in the year because the Legislature will be tied up in budget discussions in late spring to head off what is expected to be an $8 billion deficit.

In a separate interview with the Business Journal, Wilson hinted that the workers' comp issue may ultimately have to be resolved by a state ballot initiative.

Aubry said the initiative option is being discussed, but is a second choice. "The problem with the initiative is it wouldn't be on the ballot until the spring of 1994," he said.

Also, if the governor sponsors an initiative, there would surely be "dueling initiatives" if not multiple initiatives on workers' comp reform, Aubry said.

Still others in the insurance industry are not as hopeful that a package will get through the legislature. Stanley Zax, chairman of Woodland Hills-based Zenith National Insurance Co., said he assesses the chances of a workers' comp package being approved in 1993 as 50/50.

Meanwhile, the war on workers' comp fraud which began in 1992 will continue into 1993, according to state Insurance Commissioner John Garamendi. The Workers Compensation Insurance Fraud Unit, which was set up in 1992, arrested 16 individuals suspected of defrauding the system for at least $100 million.

But more fraud investigations are in the pipeline. According to Garamendi, at the end of 1992 the fraud bureau was receiving 1,000 suspected fraud cases a month and had 300 open cases statewide.

"With the Workers' Compensation Insurance Fraud Unit up and operating at full speed, we expect to continue to aggressively go after those individuals and rings that sap the system and drive up the costs for everyone, and we plan to continue to work closely with local law enforcement, including the Major Fraud Unit of the new District Attorney, Gil Garcetti," Garamendi said.

Law enforcement did not do enough to stamp out fraud, said Zax of Zenith Insurance, which grabbed headlines in 1992 for its efforts in filing four massive class action Racketeer Influenced and Corrupt Organization Act lawsuits against four groups of doctors, lawyers and medical clinics that were allegedly running workers' comp fraud mills, and forcing doctors, clinics and a lawyer to pay Zenith undisclosed cash settlements.

Zax grumbled that the state's Department of Insurance has not done enough to fight workers' comp fraud and the arrests so far have not been of ringleaders.

But he said, "We can excuse this year (1992) as just getting ready."

Next year, though, there is no excuse if the Department of Insurance and District Attorney's office do not step up enforcement against large rings of insurance fraud mills, Zax said.

"If it doesn't happen, they should be severely criticized, in fact, they should be removed from office," he said.

But Zax added that he expects a step-up in enforcement to occur, especially from the Los Angeles County District Attorney's office which has "a new attitude" about enforcement against workers' comp fraud since Garcetti, who was elected in November, has been in charge. "I've spent some time talking to him. I think that he understands the importance of workers' comp fraud," Zax said.

While workers' comp dominates the insurance scene, there are other major issues hanging over the industry.

In late 1992 or early 1993, Los Angeles Superior Court Judge Dzintras Janavs is scheduled to issue a decision on a lawsuit brought by 20th Century Industries against the state Department of Insurance.

The Woodland Hills-based insurer was the first to be formally ordered by the Department of Insurance in May 1992 to pay consumers $100 million in rebates under rollbacks and refunds required by Proposition 103, which was passed by the voters in 1988. But instead of paying out, 20th Century sued the Department of Insurance, challenging Prop. 103 and Commissioner Garamendi's regulations and the commissioner's authority to enforce it.

The Department of Insurance hopes a victory in the case will spur other insurers to drop legal actions against the department and voluntarily pay Prop. 103 rebates.

Until now only a handful of insurers, including Mercury General Corp. and The Automobile Club of Southern California, has voluntarily made rebates. Only $270 million of the about $2.3 billion in ordered rebates has been paid.

In a written answer to questions submitted by the Business Journal, Insurance Commissioner Garamendi said, "Once the current hurdle has been cleared with what I believe will be a strong victory in the 20th Century lawsuit, I am confident that more insurance companies will come forward with the rebates they owe their customers."

But Gerald Lewinsohn, insurance analyst with Merrill Lynch Global Securities, is one of a few industry experts who say 20th Century is likely to emerge the victor. The insurer "appears to have done an outstanding job in presenting their case," he said.

Regardless of how Judge Janavs rules, Lewinsohn said he doesn't expect insurers to start issuing checks or Commissioner Garamendi to give up battling for the rollbacks. "It looks like this issue will continue for a while," the analyst said.

Harry Fong, an analyst with Conning & Co., a Hartford, Conn.-based investment firm specializing in insurance issues, agrees, noting that no matter who wins, it is likely the case will be appealed.

"Therefore no one is going to see any rate rollback," Fong said. He added he doesn't expect the issue to be resolved in the first half of 1993.

Meanwhile, Prop. 103 and the adversarial relationship between Commissioner Garamendi and insurers create an air of uncertainty, Lewinsohn said.

He noted that although auto insurers 20th Century and Mercury General Corp. posted good profits in 1992, "everything is not fine."

Neither company is growing business in California, in part because of the state's regulatory environment, Lewinsohn asserted.

And Sen. Torres said he plans to hold a hearing in late 1992 or early 1993 on auto insurance reform. Last year numerous attempts to lower the cost of auto insurance failed.

The hearing will focus on a number of plans to reform auto insurance, including tying insurance premiums to gasoline consumption. "We're going to look at every aspect of auto insurance," Torres said.

But some question whether reform will happen. Roger Tompkins, vice president of California operations for State Farm, said he doubts any significant auto insurance reform will be passed this year because, in his opinion, the legislature is influenced by trial lawyers who want to maintain the status quo.

Meanwhile, expectations are high that major steps will be taken this year towards a universal health care system in the U.S. and in California.

The Health Insurance Association of America, an insurance industry group, recently announced it was proposing its own plan to provide health insurance for every American. In a press release in which the group endorsed health coverage for the medically indigent provided through a tax on employers, the HIAA described its move as "a radical break from previous policy."

Don White, spokesman for the HIAA, said President Bill Clinton is expected to unveil in his first 100 days of office a plan that will combine aspects of other universal health care schemes from other parts of the country, including Commissioner Garamendi's health care proposal.

Garamendi may have had some national recognition for his plan, but he has been unable to get it through the state Legislature. Gov. Wilson last fall vetoed a bill sponsored by Sen. Torres to set up a commission to start working on Garamendi's plan.

In his written statement to the Business Journal, Garamendi said one possible scenario for 1993 is that federal legislation will guarantee "a comprehensive benefits package to which every American is entitled." The federal measure, however, may not mandate a specific plan, but would likely "give states the right to tailor it to their own needs," Garamendi said.

Under his plan, private health care and health insurance providers would offer a basic health care package to all Californians. The plan would be paid for by a tax on payroll of about 6.75 percent and would cover the disability portion of workers' comp insurance as well as basic health coverage, Garamendi said.

"I'd like to see a federal reform because the crisis is a national one, but we could make this happen in California right now," Garamendi said.

White said he doesn't know what will happen in California. But he added, "From a policy perspective, it's very clear we're going to have universal health care coverage in this country."