| WORKERS'
COMP CRISIS
California’s legislators have just passed eight bills that Governor Gray Davis has indicated that he will sign. The end result of this legislation is the potential of reducing Workers' Compensation premiums by 5%. What does this mean to the trucking industry that is paying over $30.00 per hundred dollars of revenue for a driver? It would amount to about a $1.50 of cost savings! This legislation only indicates that there will be savings, but nothing indicates any reduction in insurance premium. It is interesting that nothing has been said or reported by the news that benefits were increased by legislation in 2002, adding to the problem that was already out of control. In the early 1990s, California’s answer to insurance competition was called open rating. This allowed the insurance companies to set their own rates. At that time, it was good for the consumer for as long as it lasted. The insurance industry (which you would think would be sophisticated in economic matters) is no different than you or me. It took advantage of the market by writing as much business as it could possibly digest. Unfortunately, Workers' Compensation has no tail, and staggering losses pursued. These losses, coupled with the loss of investment income from the investment sector, reduced the insurance industries presence in California. Many companies went out of business. In the end, one of the only remaining markets was the State Compensation Insurance Fund. The State Compensation Insurance Fund’s ability to accept new business has recently been curtailed by the Department of Insurance. The Department of Insurance deemed that their reserves were inadequate for the size of their book of business. At this point, there are only limited markets available. The majority of those markets left are looking (primarily) for large accounts developing substantial insurance premium. Fraud and litigation continues to plague the process. Workers' Compensation is looked at by many as a free ride. From the recipient to the medical provider and the legal system that embraces the opportunity to extort payments out of the insurance industry, few working controls exist. Consider this fact: 60% of all revenue received by the legal profession comes from the insurance industry. Workers' Compensation is the oldest social insurance program in the nation. It is a no-fault system, providing benefits for on-the-job injuries. Those taking advantage of the system are stealing from those of us that are paying into the system. 75% of all Workers' Compensation claims are handled expeditiously and are administered without dispute or litigation, and the majority of people return to work within three days. But the other 25% of claims account for the vast majority of cost and litigation - and litigation is common. California, as well as the rest of the nation, has experienced a dramatic decrease in manufacturing jobs. Since the inception of NAFTA, the nation has lost 24 million jobs to foreign countries. Why? Costs are lower. No one can question our ability to compete in the worldwide market - our ability to produce far out paces those of any other nation. But, our government has created every obstacle, discouraging business and has participated in the encouragement of moving business out of the country. The displacement of jobs did not start with NAFTA. There was a strong force of globalization and the export of our manufacturing abilities back when George Bush, Sr. was president. Ironically, free trade is not free at all - it comes with trade restrictions outlined in thousands of pages of legislation. California is the home of many of the world’s leading research and development companies. The irony of this is that many of the products that are developed here are manufactured out of the country. Why? The cost of doing business in California is outrageous, and the Workers' Compensation issue is only one nail in the state economic coffin. Every employer in the state should take the lead from Costco. They have stated the issue clearly and have made each of their customers aware of the problem by asking them to contact their state representative. Workers' Compensation reform is necessary for California to regain its importance in the world economy. We cannot continue to exist on a service and consumer economy, existing solely on fast food and foreign goods. Take the time to contact your elected state representative. If you need help, call me. I have a sample letter that can help you get started. I can be reached at California Plus Insurance Service at 1-800-699-7101. |