The state of the workers’ compensation insurance marketplace is of little, if any, concern of late to the legislature or the governor. Premium reductions have been substantial, and loss ratios continue to be misrepresented by labor and applicant attorney advocates in an effort to show that only insurance companies have profited from SB 899 reforms.
According to the Workers’ Compensation Insurance Rating Bureau, the Jan. 1, 2007 premium reductions will take California’s average premium to well below $3 per $100 of payroll, continuing a steady decline in California’s rates when compared to other states.
The State Compensation Insurance Fund is finally losing market share. The installation of a new Insurance Commissioner and the departure of Sen. Jackie Speier from the legislature seem to have shelved important questions about desperately needed governance changes surrounding SCIF.
Legislators are talking about 24-hour coverage as a way to get more money on the table for comprehensive health care reform, and at least one bill would authorize SCIF to sell health insurance.
Meanwhile, the rest of the world looks with somewhat less rosy eyes at the California insurance marketplace. Those who analyze markets for a living tend to take a less immediate view of profitability. According to A.M. Best, “(w)hile expectations are for reduced profits over the midterm, this market has improved considerably and is a highly coveted and profitable line of business for now. Only time will tell if this highly cyclical market can sustain profitability.”
Where will the legislature be during this “reduced profit” period? About the same place it was in 1998-2002. Nowhere. It is easier to spout off about accident year loss ratios than to take the time to figure out where the money really goes. It is easier to rail against the industry than to pause and consider how billions of dollars in cost reductions have allowed businesses – whether insured or self-insured – to reinvest in California, create more jobs, and provide better opportunities for those who work here.
To a legislature that has never seen a surplus it could not blow through, the need for surplus to compete in an increasingly heated insurance marketplace is an alien concept. The billions of dollars necessary for the system to adequately reserve for the disastrous years prior to reform are apparently just an accounting trick – like the ones they perpetrate each year.
There are no dark clouds looming on the horizon. A slight chance of rain, yes. The industry will price itself into higher loss ratios and no one will notice. In fact, given the six-month cycle of rate reductions, the loss ratios are already starting to climb. Rather than look the other way, the legislature would be well served to take the initiative now and address thorny issues such as SCIF governance, relief from the archaic mandatory reserve requirements that limit the flow of capital into the marketplace, and improving access to the marketplace for small and medium-size employers.
That, of course, would require a long-term view of workers’ compensation. Given a legislature that is still adjusting to its public policymaking bifocals, it is unlikely that such vision exists anywhere in Sacramento.