Schwarzenegger Workers’ Comp Proposal Gives Insurers Free Pass

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Consumer Group Says Rate Regulation Can Stem Rising Workers’ Comp Costs

Consumer advocates criticized the workers’ compensation reform proposal introduced today by Governor Schwarzenegger because it greatly reduces penalties against insurers that pay benefits late, yet provides no regulation to keep workers’ compensation premiums fair and stable.

The Foundation for Taxpayer and Consumer Rights (FTCR) pointed out that although insurance companies blame rising costs on increased premiums, the largest private workers’ comp insurer in the state, AIG, just reported 3rd quarter 2003 profits up 27%. Last week, AIG also disclosed a $100,000 contribution to Schwarzenegger’s Total Recall campaign. Other top workers comp insurers also saw major profit increases, including Everest (90% increase in profits) and Zenith (200% increase in profits for first six months of 2003).

“Schwarzenegger’s bill gives a pass to insurance companies that are currently raking in enormous profits and forces injured workers and overcharged businesses to pay the price,” said Carmen Balber, consumer advocate with FTCR. “The state has a tried and true method to lower insurance premiums — strong insurance regulation like that under Prop 103.”

California has a successful history with strong premium regulation of auto, homeowners, commercial and most other insurance under Proposition 103. After the passage of Proposition 103‘s insurance regulations, auto insurance premiums dropped 22% in California while the rest of the nation’s premiums went up 30%. But California workers’ compensation premiums — deregulated in 1993 — have skyrocketed in these years without insurance regulation.

Proposition 103, which does not currently 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. 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.

“If the Governor really wants to lower businesses’ insurance premiums, he has to take on the insurance industry’s profiteering. That means standing up to insurers including AIG, which just donated $100,000 to the Governor,” said Doug Heller of FTCR.

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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