Some local manufacturers and industry experts are fairly optimistic that whopping increases in workers’ compensation premiums won’t hit their sector in 2011 despite a 28% hike that’s on the table.
California State Insurance Commissioner Steve Poizner has until Nov. 18 to weigh in with the final say on the proposed increase, which is backed by the Workers’ Compen-sation Insurance Ratings Bureau, a San Francisco-based trade group that petitions the state agency twice a year on rates.
“The state insurance commissioner may sense the harm that such steep increases may cause to companies doing business in California and reject the increases or recommend increases lower than those proposed,” said Hedley Lawson, vice president of global human resources for Anaheim’s Multi-Fineline Electronix Inc.
Multi-Fineline, also called M-Flex, designs and makes flexible printed circuit boards for cell phones and other mobile devices. Nearly all of its manufacturing is in China, where it has about 15,000 workers. The company employs 85 workers at its Anaheim headquarters, where it makes prototypes and samples and conducts research and development.
Hedley, who spent last week in China on a business trip, noted that steep rate increases proposed in the past two years were rejected, resulting in little added costs to the company.
Poizner’s Opposition
Poizner, who will finish his term in December, has consistently opposed rate increases during the economic downturn as Gov. Arnold Schwarzenegger and business advocates lobbied against initiatives.
Adding to the optimism about dodging a big hike is the fact that any ruling on the pending proposal would only be a guideline, with insurers still allowed to set their own rates.
Insurance companies weigh variables, such as healthcare costs and payroll, against a company’s experience modification rate when setting premiums.
The experience modification rate is a relatively straight analysis that compares a company’s annual insurance claims against its policy premiums over three years, excluding the current year.
If a company has higher claims than expected, the rate will be higher, according to Don Dressler, who runs an Irvine consulting firm that specializes in workers’ compensation, risk management and human resources issues for midsize contractors, manufacturers and other companies.
Dressler said he tells his clients, most of which have fewer than 100 employees, to review safety practices and ensure their insurance agent knows every facet of the business before negotiating a renewal.
“If you’re an employer, you have to demonstrate you’re a good risk,” said Dressler.
Attention From OSHA
That’s easier for manufacturers such as Fountain Valley’s Kingston Technology Co., which is big enough to get regular attention from inspectors of the federal Occupational Safety and Health Administration.
Kingston, which buys memory chips and assembles them onto circuit boards or as flash memory devices, saw sales of $4.1 billion in 2009.
The company employs 3,900 people globally with most of its manufacturing is in China. The 825 workers in Fountain Valley primarily handle initial production runs, packaging, and some assembly.
Kingston is audited twice a year by OSHA and has implemented a variety of programs to keep workers’ compensation costs and injuries in the workplace down. They include ergonomics, machine guarding and the use of personal protective equipment.
“It’s a level of compliance aimed at controlling occupational health and safety risk,” said Kingston spokesperson David Leong, who declined to comment on the possible rate hike.
M-Flex has implemented several cost control measures as well, including rewarding safe behavior, aggressively managing claims to reduce or eliminate fraud, establishing a return-to-work program for injured workers and providing high-quality medical care.
The company said it has lost only one work day to injury claims in the past four years, pushing down its experience modification rate in each of those years.
M-Flex said it doesn’t expect any hike in rates by its broker next year.
“The limited exposure to increased rates, a low loss rate, and a further drop in our experience modification would appear to put us in a good position in 2011 from a cost control perspective,” Lawson said.
Other manufacturers, such as InterTrade Industries Ltd. in Huntington Beach, are meeting with insurance carriers in the next few weeks to determine if the potential hike will affect their bottom lines.
“We’re in the process of evaluating the pending workers’ compensation premium hikes,” said Terry Cassidy, vice president of administration for American Innotek Inc., the Escondido-based parent company of InterTrade.
InterTrade, which specializes in vacuum and pressure forming of heavy-gauge plastics and polyurethane foam products, acquired the assets of Plastic Concepts Inc. of Huntington Beach late last month for an undisclosed sum.
The acquisition will double the company’s manufacturing space to 50,000 square feet and add about 10 jobs. InterTrade employed about 40 people before the deal.
Bad Old Days
Workers’ compensation rates peaked at $6.45 per $100 of payroll in July 2003, prompting lawmakers to overhaul the ratings system as premiums soared. The legislative action brought a quick and steep reduction in rates.
Rates have crept back up more recently, reaching $2.44 for the first six months of this year, an increase of 3% from the end of 2009.
The California Department of Insurance is still receiving information on the proposal and Commissioner Poizner will likely take the full 30 days he is allowed to review the matter before ruling on Nov. 18, said Ioannis Kazanis, press secretary for the agency.
