Some Employers Reporting Two-Fold Increases or Higher
Jim Ball is mad.
The president of South Gate-based Sure-Grip International, a skate manufacturer, found out two weeks ago that his workers’ compensation carrier had increased his firm’s premium from $14,000 to $23,000 a year, a whopping 64% increase, effective Jan. 1.
So instead of relaxing the week between Christmas and New Year’s, Ball and his broker frantically shopped for better rates. They contacted about a dozen companies. Two came in at just below $23,000, while the highest came in at $35,000, two-and-a-half times what he paid last year.
What makes the raise all the more galling for Ball is that his firm hasn’t had a single workers’ comp claim filed in three years.
“We played by the rules and have had zero losses, a perfect safety record,” Ball said. “And now we get hit with this, with just five days notice. It’s the most shameful thing I’ve ever seen in all my years of doing business.”
All across the region and the state, employers received a nasty Christmas shock: huge increases in their workers’ compensation premiums. In fact, Sure-Grip’s premium hike is not even among the highest; some brokers report that their clients have been hit with two-fold, three-fold or even higher increases.
“We’re seeing huge jumps of 150%, 200% or more,” said Fritz Mutter, president of Golden Pacific Insurance Services. “It’s all happening so quickly that people don’t have a chance to shop around. And even if they do, they find some carriers are declining to bid on them. It’s changed from a buyers’ to a sellers’ market overnight.”
Mark Thurman, president of the Irvine office of Pepper Construction, said he expects his firm’s workers’ comp premiums to go up by 20% to 30% when it’s time to renew in March. “We’ve already begun to plan for the increase,” he said. In the construction industry, workers’ comp can be a large portion, up to 15% ,of labor costs, he said.
The average workers’ compensation policy that renewed on Jan. 1 is going up between 20% and 30%, industry sources say. The reason: rates had been too low for too long and market forces have finally acted to push them back up again.
When the workers’ comp insurance market was deregulated in 1995, premiums went into a free-fall as insurance carriers scrambled for market share. The rates went even lower over the next four years, despite increasing evidence that actual claims costs were rising. They stayed low despite repeated warnings from state regulators, industry watchers and analysts that the price wars were taking a toll on the financial standing of the carriers.
The big winners were California employers, who saw their premiums fall up to 60% from their historic highs in 1992-93, just before a workers’ comp reform package passed the state Legislature.
“For five years, the market has been severely undervalued,” said Randy Hogan, spokesman for the California Workers’ Compensation Insurance Rating Bureau. “Last year alone, the losses (claim pay-outs and administrative) were 141% of the total premium dollars collected. Claim pay-outs alone were 99.7% of premiums collected. That couldn’t go on forever.”
In October, state Insurance Commissioner Chuck Quackenbush recommended an 18.4% hike in the base workers’ comp premium charge. (Under deregulation, Quackenbush cannot force carriers to follow the recommendation; he can only cajole them.)
Then came sharp drops in the stocks of two of the four largest carriers in the state: Santa Monica-based Fremont General Corp. and Calabasas-based Superior National Corp. In the second half of 1999, the stock prices of those two companies fell 80% and 90%, respectively, as Wall Street grew concerned about their financial conditions.
Most employers expected to see increases of around 20% in their premiums. But in many cases, the increases have been far higher.
One of the big reasons is that insurance carriers have slashed or even taken away the huge discounts they were giving in previous years as a way to gain market share. On a policy valued at $100,000, for example, an employer might have been granted a 30% discount, to $70,000. In such a scenario, not only has that discount disappeared, but the base premium has increased by 18.4 percent.
On top of that, some carriers are placing surcharges of up to 25% on those companies in high-risk industries (like logging, mining, bottling and circuit board manufacturing). In theory then, that $70,000 premium could double to about $145,000,and that’s before the company’s claims history is considered.
That discounting finally caught the attention of Quackenbush’s office, which encouraged carriers to limit their discounts and surcharges to 25% of the base premium price.
“What’s happening now is all the more reason for us to try to rein in scheduled discounts,” said Tim Taylor, legislative analyst for the Department of Insurance.
Contractors and small manufacturers have been among the hardest hit by this surge in premiums.
“We were expecting a small decrease this year since we had improved our experience rating,” said Greg Games, vice president of Premier Tile and Marble, an Alhambra-based commercial tile contractor. “Instead, our rate went from $3.93 per $100 payroll to $6.75 per $100 payroll (a 72% increase.) Our (annual) premium amount went from $51,000 to $87,750.”
Games said the increase didn’t get his notice until Dec. 27, leaving only four business days to shop around for a better rate.
“I had been talking with my broker and we thought that there might be an increase, so he actually started asking for quotes from other carriers early in December. But those quotes didn’t come back until after Christmas. And when they did, we found that the $87,750 was by far the lowest of the lot. The highest was $198,000.”
Last year, Gov. Gray Davis vetoed a $2 billion benefit increase authored by State Sen. Hilda Solis, D-El Monte. But it is widely expected that organized labor will push for another benefit increase this year, on the grounds that more of the money being paid out by employers should go to injured workers rather than staying with insurers.
However, the current sharp rise in costs will likely serve to stiffen employer resistance to any benefit increase. Also, Davis indicated last year that he favors an increase of no more than $400 million a year in total benefits to injured workers. n
Fine is a staff reporter at the Los Angeles Business Journal, Sherri Cruz also contributed to this story..
