Sacramento, CA – Marjorie Berte, Western Region vice president for the American Insurance Association (AIA), made the following statement in response to the introduction of workers’ compensation reform legislation in the California State Legislature. The comprehensive bill, SB 863, aims to reduce costs within California’s workers’ compensation system by attacking cost-drivers. With the 2012 Session scheduled to adjourn on Aug. 31, legislators will have less than one week to consider this important legislation.
Ms. Berte’s statement follows:
“AIA supports efforts to improve California workers’ compensation system, which is complex, expensive and frustrating for both employers and workers. The workers’ compensation reform bill, SB 863, negotiated between labor and employer groups, contains beneficial reform components that address many well-documented cost-drivers and generators of frictional costs. Much work went into the bill’s development. However, the expectation by proponents that savings would be twice the cost of benefit increases is now dashed by preliminary estimates released today by the Workers’ Compensation Inspection & Rating Bureau (WCIRB). The WCIRB concludes that while claim frequency utilization costs will decrease by $400 million on an annual basis, permanent disability benefit costs will increase by $700 million—adding $300 million annually in new costs to the system beginning in 2014. Expectations of net savings of two to one are now put at a net cost increase of 1.4 percent annually.
“The WCIRB’s analysis is ‘preliminary’ and does not account for elements that are unable to be priced actuarially. Furthermore, adding to the uncertainty, there are additional costs not accounted for in the current analysis that must be considered, including implementation costs, loss adjustment expenses (both allocated and unallocated), fees, and unanticipated costs and liabilities. AIA member companies’ policyholders, public agencies, and self-insureds, justifiably require verification of real savings to offset not only benefit increases, but current system cost pressures driving the WCIRB’s recently proposed 12.6 percent advisory pure premium rate increase, to be effective January 1, 2013.
“Today’s WCIRB report shows there is much more work to be done in reining in California’s workers’ compensation costs and in re-balancing the system financially. AIA will continue working with our partners in the business community to prevent an erosion of much needed reforms during the amendment process and in support of their efforts toward achieving a result that will be positive for all California’s employers.”