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Reforms to California’s workers’ compensation insurance system cut rates paid by businesses to cover employees injured at work.

But additional cuts of 20% or more are needed to bring the system into balance, according to California Insurance Commissioner John Garamendi.

“The problem is that premiums to employers have not come down at as fast a pace as the costs,” Garamendi said. “Employers, therefore, are not seeing the full benefit of reductions in insurance.”

Garamendi said insurance companies aren’t passing on the full savings from the state’s reform bid, which has cut fraud and exorbitant insurance claims.

“The insurance companies have had a profitable past year and a half, almost two years, as a result of the reforms,” said Garamendi, who plans to run for state lieutenant governor next year.

The insurance commissioner has no legal authority to dictate rates. Insurance carriers use Garamendi’s non-binding recommendation as a benchmark when settling rates for policy renewals.

In the past year and a half, workers’ comp insurance rates have been slashed by 27% on average, according to a report issued by the state Department of Insurance.

That’s less than the 36.5% cut urged by Garamendi. But it’s a major change in a system that employer groups say dramatically increases the cost of doing business in the state.

Garamendi told the Business Journal that rates could have declined by as much as 50% from January 2004. But he claimed insurers only have passed along about two-thirds of the cost-savings from reforms passed by the state legislature and signed into law by Gov. Arnold Schwarzenegger in 2004.

Officials with the State Compensation Insurance Fund, which controls more than 50% of California’s workers’ comp market, say more savings are coming.

“Here’s the bottom line: We’d like to deliver further rate relief to employers,” said Jim Zelinski, a spokesman for the state fund in San Francisco. “We think we made a good start in that direction. We think there will be additional, significant savings from the reform legislation, and that it will be reflected in our future rate filings.”

The state fund said it hasn’t passed on all potential cost savings to businesses because it’s rebuilt the fund’s reserves, which are used to pay workers’ comp claims. The quasi-public insurance fund’s reserves were depleted during the surge in workers’ comp claims a few years ago.

In September, the Workers’ Compensation Insurance Rating Bureau said rates should be lowered by 15.9% next year. The bureau is an insurance industry group whose recommendation is non-binding.

The bureau’s latest recommendation is higher than a July proposal that called for a 5.2% drop in workers’ comp rates in 2006.

The ratings bureau’s recommendations go to Garamendi, who is expected later this month to announce his own recommended rates for 2006.

He declined to be specific on his range of recommended rate cuts, but indicated they could be up to 20%.

Garamendi has urged Schwarzenegger to call for lower rates set by the state insurance fund.

“My plea to the governor is to force savings,” he said. “The governor controls premiums through the board of the state fund. If the fund moves to aggressively reduce premiums, then the others (insurance companies) can do nothing but follow suit.”

Garamendi said that if Schwarzenegger does nothing to encourage the state fund to lower rates further, he plans to push for legislation that would regulate rates.

Schwarzenegger is opposed to state regulation of workers’ comp rates, said Vince Sollitto, the governor’s chief deputy press secretary in Sacramento.

“We have to let reforms continue to work,” Sollitto said. “It’s premature to speculate on rate regulation.”

Orange County insurance brokers are cautiously optimistic that rates may be slashed further.

“To me, rates rose 50% too high, and now they’re down 30%,we’re getting back to normalcy,” said Bob Dennerline, president of Armstrong/Robitaille Business & Insurance Services in Fullerton. “I won’t declare victory, but the furor is over. You won’t see people leaving the state because rates are too high, like they were two years ago.”

Greg Pe & #324;a, president of Irvine-based USI of Southern California Insurance Services Inc., said the insurance market isn’t “out of the pain zone yet.”

“There is still a tremendous backlog of claims in the pipeline,” Pe & #324;a said. “But I do see an encouraging trend to lessen abuse in the system. To an extent that you control abuse in the system, the product becomes more affordable. Once you determine with some predictability the cost of workers’ comp rather than the open end pit that sucks employers, you’ll see more insurance carriers cautiously enter the workers’ comp market here in California.”

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