IR # 96-43
Friday, November 1, 1996

Rick Rice
Troy Swauger
(415) 972-8835

Workers'Compensation Reform Credited for Further Insurance Premium Rate Reductions

SAN FRANCISCO--Further evidence that the 1993 workers' compensation reforms championed by Governor Wilson are having their intended effect was provided this week when the State Insurance Commissioner approved a reduction of 6.2 percent in the advisory premium rates workers' compensation insurance carriers charge employers.

"Twin goals of the reform efforts were to reduce employer costs in what had grown into an outrageous $11 billion per year system, and to allow injured workers to share in cost savings through higher benefit levels," said Lloyd W. Aubry, Jr., director of the California Department of Industrial Relations. Results to date indicate both are being achieved, he said.

"On July 16, we issued our Third Anniversary Report on Workers' Compensation Reform, which showed how the various elements of the reform package combined to significantly lower costs -- by about 30 percent by the end of 1995, to an estimated $8 billion per year," he said. The total costs insured employers paid for premiums dropped from over $9 billion in 1993 to under $6 billion in calendar year 1995, he added.

"In the meantime, the maximum weekly benefit for temporary disability rose from $336 per week in 1993 to $490 per week for injuries which occur after July 1, 1996. Put another way, it rose from 63 percent of the average weekly wage to 85 percent of the average weekly wage."

This latest round of premium rate reductions is the fifth since workers' compensation reform, Aubry noted. A reduction of seven percent was mandated in the reform legislation, and the Insurance Commissioner subsequently ordered three more mandated reductions.

In issuing his order for a 6.2 percent average reduction for next year, Insurance Commissioner Chuck Quackenbush said it was due, at least in part, to several aspects of the 1993 reforms. The fight against fraud, which has reduced costs; an increased attention to workplace health and safety, which has led to a decrease in injuries and claims; and the abolition of the minimum rate law.

On Jan. 1, 1995, premium rates were deregulated by elimination of the mandatory minimum rate system, and since then "pure premium" rates have been adopted. These are advisory, but typically insurance carriers use them as the basis for their actual rates. Last year, the commissioner had ordered a modest increase in the advisory rates.

"There is no question that the business climate in California has changed remarkably for the better in the past three and a half years," said Aubry, "and most attribute our workers' compensation reform efforts as a major contributing factor for this. We are pleased that many of the reforms we had fought for then have helped us achieve these results."