The California Workers’ Compensation Insurance Market – You’re A Mean One, Mr. Grinch

The California Workers’ Compensation Insurance Market – You’re A Mean One, Mr. Grinch

The RAND Corporation recently released a 164 page monograph on California workers’ compensation: "California’s Volatile Workers’ Compensation Insurance Market – Problems and Recommendations for Change”.  Considering the season, perhaps a more fitting title would have been “How the Grinch Stole Christmas, Again”.

…“You really are a heel.”  A December, 11 2009 story featured in the Insurance Journal summarized the RAND report: "California’s Workers’ compensation insurance market will remain vulnerable to wide swings in performance unless changes are made to improve the predictability of costs, transparency of pricing decisions, regulatory oversight and consistency of the incentives facing different parties.”

…“You’re as cuddly as a cactus,”  The state’s insured employers are still making payments to the California Insurance Guarantee Fund (CIGA) for their estimated $4.9 Billion joint and several liability assessment as a result of 31 insurance company failures during the last market crisis.  RAND appears to be warning California employers to be aware of the next wave of insurer insolvencies and subsequent Billions in additional assessments. Possible translation -- don’t stuff your employees’ stockings with bonuses and raises this Christmas; save your money for the payments you will be making  to AIG (Chartis) next year.

…“You’re as charming as an eel, Mr. Grinch,” The $4.9 Billion assessment is in addition to the punishing $23.5 Billion in premiums employers paid for workers’ compensation insurance in 2004 alone. I believe RAND is telling us that unless there is change – drastic – change, the California economy will once again be crippled by a grossly inefficient market-driven insurance system that places its clients at great risk of insolvency.

…“You’re a bad banana with a greasy black peel.”  The California Workers’ Compensation Insurance Rating Bureau (WCIRB) has released its summary of September 30, 2009 Insurer Experience.  At $2.33 per 100 of payroll, rates have now declined to their 1998 level.  During the same period, combined loss and expense ratios have risen to 111, close to that experienced in 2002.   For every one dollar collected in premiums, insurance companies are, on average, paying out one dollar and eleven cents in expenses.  Unless unexpected change takes place soon, that ratio will likely be much higher in the coming months and years.  In light of  Insurance Commissioner Poizner’s position of  requiring licensed insurers in the state to divest their nearly $6 Billion of investments in multinational companies doing business in Iran or face penalties, where will insurance carriers invest in order to recover their losses?  …“Your soul is full of gunk, Mr. Grinch, The three words that best describe you are as follows, and I quote, “Stink, stank, stunk”!”

There’s a much better and proven way for middle market California employers to protect their employees from industrial accidents and diseases:  and   The time has arrived for employers in common industries to ban together, form self-insurance groups (SIGs) and control their own destiny. “Nothing else in the world…not all the armies…is so powerful as an idea whose time has come.” – Victor Hugo

Season’s greetings,
Michael G Kilzer

For more information on workers’ compensation self-insured groups (SIG), please contact Michael Kilzer at Strategic Workers’ Compensation Solutions.  415-693-9200.