Rate Rollback, Ban on Unfair & Excessive Rates, Only Sure Way to Lower Premiums
Workers’ compensation insurance reform under consideration in a special legislative session must include premium oversight and a rate rollback in order to guarantee businesses relief from unfair and excessive premiums, said the Foundation for Taxpayer and Consumer Rights (FTCR) today. The group identified a five-point insurance reform program, which would require prior approval of workers’ comp rate changes, regulations similar to those already in place for auto, homeowners, commercial and most other lines of insurance in California.
“Governor Schwarzenegger promised comprehensive reform of the workers’ comp system, yet has ignored the most important issue of all — actually lowering premiums. Insurance companies will not voluntarily pass on savings — overcharged employers will get no rate relief until insurers are forced to open their books and justify rates. Only strict oversight to root out unfair premiums and excessive profits will take away insurers’ license to gouge,” said Carmen Balber of FTCR.
FTCR’s five-point plan for workers’ compensation reform would:
- Create a stringent disclosure and “prior approval” system for setting workers’ comp rates.
Require insurers to submit rate changes for review before new rates are imposed on businesses. Limit insurance company profits, expenses and projections of future losses — all areas which are ripe for abuse in an unregulated, and unaccountable, market. Prohibit insurers from inflating their claims losses, limit the amount insurers can set aside as surplus and reserves, and ban insurers from passing on to consumers the cost of lobbying, advertising, and other unnecessary overhead. The State Compensation Insurance Fund and private workers’ comp insurers would be subject to the regulations.
- Mandate an immediate rate rollback.
Lower rates cannot be left to insurance companies’ promises — a rate rollback will provide immediate rate relief for California businesses, and offset previously excessive rate hikes by setting a baseline for measuring fair prices. Nothing in Governor Schwarzenegger’s proposal requires insurers to lower premiums, even if claims costs are drastically reduced.
- Freeze rates for one year.
With the rate rollback providing immediate relief to businesses, a rate freeze will provide the insurance commissioner the time to determine whether still further decreases are required. It will also ensure that no new increases will take effect to negate the value of the rollback.
- Give consumers the power to challenge insurance companies’ rates and practices.
Regulations are only as strong as the regulator. To guard against the possibility of lax enforcement by the state, insurance consumers and their representatives must have the ability to challenge rates in court or before the Department of Insurance.
- Keep private insurers in the state by linking workers’ comp to other insurance lines sold in California. Any workers’ comp insurer that pulls out of California must also stop selling all other lines of insurance in the state.
Insurance companies such as AIG, Zurich and Liberty Mutual make a lot of money in California selling auto, home and other insurance products in addition to workers’ comp. These companies should not be allowed to leave businesses in the lurch when the workers’ comp line is not as profitable as the insurers want, while still benefiting from the sale of other insurance products to Californians. Companies that decide to pull out of California’s workers’ comp market must drop all other lines in the state as well.
California has a successful history of strong rate regulations under voter-approved Proposition 103. Prop 103, which does not apply to workers’ compensation insurance, requires insurers to justify any rate increases and bars excessive profits, overhead and other factors that drive up the cost of insurance.
After the passage of Prop 103‘s insurance regulations, auto insurance premiums dropped 22% in California while the rest of the nation’s premiums went up 30%. FTCR has used Prop 103‘s rate review provisions to challenge rate hikes by several of the state’s largest homeowners and medical malpractice insurance companies, saving homeowners $26 million in premiums, and doctors $35 million, just this year.
FTCR noted that recent spikes in profits for workers’ comp insurers, just as premiums are also skyrocketing, should be the first item under the spotlight of regulatory review. AIG, the state’s largest private workers’ comp insurer, just reported 3rd quarter 2003 profits up 27%. Other top workers’ comp insurers also saw major profit increases, including Everest, with a 90% 3rd quarter increase in profits, and Zenith, which saw a 200% increase in profits for first six months of 2003. Zenith‘s profit leap coincided with three rate increases within the last year alone.
“Proposition 103 has controlled insurance rates in California for 15 years, but it does not currently apply to the State Fund and other workers’ comp insurers. If we want to be sure that rates come down, we must require a rollback and enforce strong regulation over all the companies selling workers’ compensation insurance in the state,” said Doug Heller of FTCR.