Title: Senior vice president of marketing and product development, Majestic Insurance
Resume: Zenith, regional manager broker services division; AIG, regional manager profit center manager; Great American, profit center manager, western workers; State Compensation Insurance Fund, supervising underwriter
Schools: San Jose City College
Boards: Association of California Insurance Companies Board of Directors
Favorite Book: Freakonomics by Stephen Dubner and Steven Levitt
Favorite Quote: "Do or do not, there is no try." (Yoda)

Hernandez is the expert at one of California’s most respected and oldest carriers, having survived the slaughter of the late ‘90s. His knowledge goes beyond marketing and includes his valuable insight on the importance of claims control and customer service, carve-outs, and legislation. He is a regular at California Workers’ Compensation Institute meetings, where he is valued for his keen industry expertise.

What are the top three issues in California worker’s comp today?  
The California workers’ compensation marketplace is facing varied and significant headwinds, with the primary concern being the protracted level of high unemployment with resulting levels of economic uncertainty. Ever increasing medical inflation continues to pressure loss costs and ongoing litigation aimed at piercing AMA guidelines will continue to provide a degree of volatility that will challenge insurers’ ability to operate profitably.

Are we headed for a hard market, and if so, when will it come? How long should we expect it to last? What are the repercussions?  
I am not seeing any significant evidence of reduced capacity that would eventually lead to a climate of rate stability and eventual strengthening. It is interesting to note that only recently have we begun to see that adopted rates have not kept pace with losses and expenses. Carrier margins are being suppressed and results posted by the industry now show combined ratios exceeding 100%. In order to maintain a healthy array of markets for the California consumer, carriers cannot continue to operate in an unprofitable landscape. I believe that economic pressures will eventually lead to reduced capacity and rate levels more in line with true loss costs. That being said, I believe that the market will begin to turn beginning with the third quarter of 2011 and we will again see a return to the normal cyclical nature of the WC marketplace.

It is no longer a question of if but when we enter a hard market, so what is in the future of State Compensation Insurance Fund? Will its market share climb back to historic levels? Do you think that further reforms are needed for the governance of State Fund, for example, does it make sense to have Senate confirmation for board members?  
A competitive service provider and financially strong State Fund provides stability in the marketplace. They have improved their operations significantly from the top down, bring in much needed outside executive talent. Their focus appears to have shifted from the top-line growth to bottom-line improvement. The fund is under greater scrutiny by the California Department of Insurance. I am not sure that reforms like confirmation of board members by politicians would improve the governance of the fund.

Are medical provider networks a help or a hindrance? How should they be improved?  
Controlling the cost of medical leads to control of indemnity costs. To that end, medical provider networks are a good thing. The MPN provides the employer/carrier with medical control throughout the course of the claim. Also, the injured worker is able to select his own treating physician, as long as they are in the network. Additionally, there may be contractual discounts so the employer/carrier saves on medical costs. The downside is that the whole MPN notification process is cumbersome for employers and carriers. So much written material is provided and often injured workers do not read or understand it.

How should utilization review be improved?  
Utilization review ensures the requested treatment is appropriate and medically necessary. But identifying a "request for authorization" and completing the UR review process within the required time frame are challenges we face every day. We do believe in utilization review, but we are trying to figure out other ways to meet the regulatory requirements while at the same time keeping the UR costs down. Allowing for verbal approvals would improve the process.

What needs to be done to improve return-to-work?  
Return-to-work initiatives work best when there is a job to return to. The increase/decrease in PD ratings offers employers with an incentive that they cannot take advantage of, given the economic downturn.

What do you see, other than medical, as the next big cost driver?  
The jury is still out on the FEHA issue.

Is it realistic to deal for more cost-cutting reforms in exchange for increasing PD benefits?  
Benefit levels are for labor and management to determine. The costs of those increased benefits become the cost of doing business. We should continue to look for ways to reduce frictional costs as a means of offsetting benefit increases.

Where do you see applicant attorneys focusing litigation in the future?  
Piercing of the AMA guidelines.

Now that the federal health care bill has become law, what impact, if any, do you see that having on workers’ compensation and do you have any concerns?  
Health care reforms were more about insurance issues than medical issues. The availability of affordable health care will deter employees from using workers’ comp for their off-the-job injuries.

What is the effect of more than $1 billion in payroll being absorbed by the self-insured groups?  
Self-insured groups (SIGS) play an important role in giving the consumer an alternative, and the market should welcome this form of competition. I believe that SIGS can be attractive for employers who are not risk-averse and who thoroughly understand the benefits and potential liabilities of this alternative mechanism.

Are loss adjustment expenses leveling out or are they still climbing? What is the cause?  
LAE is still climbing as a result of increased litigation and increased investigation. But with the recent change in the WCIRB Unit Stat Plan, employers should no longer pay for it in their experience modification calculation.

Is medical severity going to continue to climb or is it just a blip?  
Doctors are treating more and longer, leading to an increase in claim duration. Severity will continue to climb.

Are there any changes to claim frequency?  
Depends on how you measure frequency. If you measure by claims per on-level premium (the traditional method) you get + 3.0%. If you measure by claims per FTE, you get - 7.9%. With the worst of the recession behind us, I expect claim frequency to flatten out.