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CA State Fund Files for Five Percent Workers Comp Rate Increase

Source: Sacramento Business Journal

Posted on 11 Nov 2009

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The State Compensation Insurance Fund, the quasi-public workers compensation insurer that covers many of the California's small and medium-sized businesses, said Tuesday it has filed for a 5 percent rate increase effective Jan. 1.

The new basic or benchmark rate will apply to new and renewal policies effective on or after Jan. 1, officials said.

The move came less than a day after California Insurance Commissioner Steve Poizner rejected a proposed 22.8 percent increase in the workers comp benchmark rate that was recommended by the Workers’ Compensation Insurance Rating Bureau, an industry-supported advisory group. Poizner said the proposed increase made no sense with the state’s economy struggling, but insurers have been complaining for some time that increased medical and other costs are hurting their bottom lines.

But Jennifer Vargen, State Fund's communications director, said the timing of the announcement was "purely a coincidence."

State Fund made the filing "based on our own schedule," and to get word out about its new rates to its customers on a timely basis, Vargen said, not in response to Poizner's announcement Monday.

Meanwhile, the company made it clear that inflation in the medical arena was a prime driver of its move.

“The principal driver of the rate increase is medical inflation,” Doug Stewart, State Fund’s interim president and chief executive, said in the Nov. 10 statement. Medical treatment costs have increased significantly, according to the WCIRB, and continue to apply upward pressure on workers comp rates.

The average annual medical inflation rate is 14 percent since 2005, according to the rating bureau.

State Fund said though so-called manual rates will jump 8 percent with this filing, other changes will result in an overall 5 percent increase in “collectible premium.”

Even after this increase, it said, its rates will have fallen a cumulative 43 percent since 2003, when legislative reforms began to effect comp pricing.

“We understand the strain that California’s businesses are experiencing in the current economic situation,” Stewart continued. “State Fund offers group discounts, a merit rating plan, and lower-than-average premiums in some classifications and industries. Because of our size and role in the marketplace, State Fund serves as a stabilizing force in the California economy. We are committed to maintaining our financial strength, our open door policy of providing workers’ compensation insurance for any employer who needs it, and our promise to California to meet employers’ demands for insurance.”

State Fund has about 170,000 policyholders, including many small businesses and large group associations.

Although it was created by the California Legislature in 1914, it is a nonprofit, self-supporting, public enterprise meant to serve as an insurer of last resort for businesses that otherwise couldn’t obtain mandatory workers comp insurance in the Golden State.