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Effect of Calif. workers comp reform on rates remains unclear

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DANA POINT, Calif. — Underwriters' need to continue seeking rate increases across the country, and the impact of California workers compensation reforms are among topics being deliberated at the California Workers' Compensation & Risk Conference, concluding Friday.

While there's still potential for California reforms adopted 10 months ago to ease employer burdens, the state's workers comp system remains among the most challenging in the nation, conference speakers and attendees overwhelmingly agreed.

“At best California is treading water right now,” said Max Koonce, senior director of risk management for Bentonville, Ark.-based Wal-Mart Stores Inc. “We look at actuarial numbers, and we look at whether claims are performing. We do not see claims durations (in California) being shortened. We do not see better medical treatment being provided. We do not see an administrative process that is speeding things up as opposed to slowing them down.”

Mr. Koonce spoke as part of a conference keynote session on Wednesday. The panel speaking at the conference held in Dana Point, Calif., focused on the impact of reforms adopted under S.B. 863, which Gov. Jerry Brown signed into law a year ago and took effect Jan. 1, 2013.

It remains too early to tell how the reforms will impact work comp insurers' loss and expense ratios, said Richard Friesenhahn, chief underwriting officer for American International Group Inc. in New York. Mr. Friesenhahn spoke as part of a panel focused on insurance market trends.

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Other speakers agreed with Mr. Friesenhan that it yet remains too early to tell the broader impact of the reforms.

But already, a $150 filing fee included among the reforms have alleviated a uniquely California problem, several speakers said. Before the reforms' adoption the state was awash in lien filings that clogged the workers comp adjudication system, costing employers and insurers hundreds of millions of dollars and claims delays as providers disputed payments for their services.

Resolving the lien problem is a reason for optimism, several speakers said.

Meanwhile, however, underwriters remain under pressure to raise the price of workers compensation insurance, others told the conference.

Increases are likely over the next 12 to 18 months across California and the rest of the nation as insurers strive to earn adequate returns for investors, Mr. Friesenhahn said.

Workers comp industry combined ratios are running above 110%, added Kevin Finn, vice president for Hartford Financial Services Group Inc.

“As a carrier, you just can't make money at those combined ratios,” Mr. Finn told conference attendees.

“On the flip side there is still is plenty of competition,” with plenty of insurers willing to write workers comp insurance, Mr. Finn said. Additionally, rising interest rates will help put downward pressure on workers comp rates.

But the pressures to increase pricing are currently greater than pressures to decrease it, Mr. Finn said.