Orange County employers and insurance brokers are doubtful that premium rates on workers’ compensation policies will decrease despite an expected lowering of a key benchmark from the state.
“The state insurance commissioner said that there would be a 1.8% decrease for 2012, but the general consensus is that rates will go up come January 1,” said Melody Henderson, insurance broker at Brakke-Schafnitz Insurance Brokers Inc. in Laguna Niguel.
The state benchmark will reflect a new calculation that takes an average of the rates filed by insurers.
The current calculation by the state is based on previously approved premium rates.
California State In-surance Commissioner Dave Jones is expected to peg the new rate by November 1. Jones’ recommendation typically serves as the primary benchmark for insurance carriers, according to George McLaughlin, as-sistant vice president of Tutton Insurance Ser-vices Inc. in Santa Ana.
The carriers are then required to submit their rates to the Department of Insurance for approv-al.
Insurance brokers and advisers here appear just as concerned as some employers about the possibility of increased rates.
“California workers’ comp environment continues to deteriorate rapidly,” said Arthur Schuler, executive vice president at the Irvine office of Chicago-based Aon Risk Insurance Services West Inc.
“The cost of these claims is rising exponentially,” he said. “The medical part of the workers’ comp claims has driven the costs up. Now add that to regulations.”
Joann Pham, chief executive of Greenlight Financial Services in Irvine, said she doesn’t think rates will improve.
“No Choice”
“I don’t know if there’s any way that we’ll be able to save on the premiums,” she said. “We really have no choice.”
Greenlight is a retail residential mortgage lender with about 250 employees locally. Pham expressed frustration with how current regulations are applied to the business.
“Workers’ compensation has its own code for the mortgage business employees,” Pham said. “Even though they are employees who work inside the office, in less risk of getting into any work-related accidents, we’re still paying what in my opinion is a high premium.”
Smaller companies appear to be more concerned about the rates.
“Someone has to pay for it,” said Richard Parsons, executive vice president of Sey-chelle Environmental Technologies Inc. in San Juan Capistrano. “So companies like us can either raise prices to pass the increased costs on to our customers, or cut staff. If you are a big company, most likely you will absorb the costs, but for most small- and medium-sized companies you can’t do this.”
Some companies have moved to avoid the uncertainty of premium increases.
“Because of self-insuring, we’re less affected by whatever the normal rates are for entities that pay for their insurance,” said John Ganahl, chief financial officer of Anaheim-based Ganahl Lumber Co.
The company has offered a high-deductible plan for its employees for 10 years as an alternative to health maintenance organizations and preferred provider organizations. “We have both the financial wherewithal and the size to do so,” he said. “We’re a medium-sized company in OC. Really big companies, I assume, would be doing something along the same line.”
Ganahl Lumber employs about 600 workers, with stores throughout the county and one in Corona.
Ganahl said he sees fewer than a dozen accident claims per year.
“Of course, it’s not to say we are preventing every accident,” he said. “But you can certainly create situations where (the number of accidents) is in the lower end.”
The company is planning to introduce health savings accounts as part of their insurance plan offerings next year.
Other employers could face challenges on making any significant changes to healthcare programs amid the spotty economic recovery.
“Employers are in a tough spot, having to make adjustments to payroll or lay people off,” said Schuler of Aon Risk Insurance Services. “And alleged fraudulent claims are working their way back.”
Orange Woodworks Inc. in Orange has recently been hurt by such claims.
“A few years ago, we had a couple of claims that were frauds,” office manager Amanda Marchant said. “The insurance company refused to investigate the fraudulent claims. We ended up having to pay for it with our ex-mod.”
An ex-mod, or experience modification factor, is a rolling three-year average of claims, Tutton’s McLaughlin said.
The rating bureau determines the ex-mod by tallying the claims of a company from the three prior years and dividing the number by expected claims, an estimate based on payroll.
“So if you’ve had several bad years, as you roll forward, you could expect that to stay with you,” he said.
Ex-Mod Factor
The unusually high ex-mod for Orange Woodworks has kept the cabinet manufacturer paying high rates for the past three years.
“2012 is going to be the year that our mod should drop significantly—I’m going to be in better shape,” Marchant said. “Our situation is a bit unique in the sense that we’re not really too worried this year, but we do have business with general contractors who will sub out us to do the cabinet and countertop portions—some of them would be concerned.”
Tutton’s McLaughlin said frivolous liens clog up the system and cost employers unnecessary dollars. “Employees can file claims that aren’t really claims—a lot of that stuff can be cleaned up.”
