AIA Says Calif. Applicant Attorneys’ Deceptive Claims About Insurer Profits is Pure Spin

As the California legislature prepares to act on Governor Schwarzenegger’s proposed overhaul of the state’s expensive, dysfunctional workers’ compensation system, the special interest group with the most to reportedly lose from real reform – the California Applicant Attorneys Association (CAAA) – lashed out this week. According to the American Insurance Association (AIA), the CAAA’s action is part of their selfish attempt to derail cost-saving reforms that would greatly benefit California workers and businesses.

Earlier in the week, CAAA reportedly deceptively and wrongly cited net income reports issued by insurers to imply that selling workers’ comp policies in California is profitable.

“This is absurd,” Nicole Mahrt, public affairs director for the Western Region, said. “The National Association of Insurance Commissioners (which comprises state insurance regulators) confirms that California workers’ compensation insurance has not generated a net operating profit for seven straight years. In fact, despite raising rates, insurers continue to pay out $1.17 in costs for every $1.00 in earned premium.”

Mahrt added that, “for most of the companies cited by the applicants’ attorneys, workers’ compensation insurance represents only a small fraction of their business. The numbers cited by the CAAA have virtually nothing to do with California workers’ compensation insurance profitability. They know that, and should be ashamed of their obvious deception.”

Since the early 1990s, several insurers exclusively or predominantly writing workers’ comp in California have become insolvent or no longer write workers’ comp (either because they were weakened financially and taken over by other insurers or because they made a business judgment to exit this increasingly unprofitable market).

Many of these companies were long-time, iconic players in the California workers’ comp market, and include Superior National, Fremont, Industrial Indemnity, California Compensation, Golden Eagle, California Casualty, Citation, Great States, Pacific Rim, Unicare, Transamerica, Paula, and CE Heath. Just last month, California Indemnity withdrew from the workers’ comp market In addition, many other multi-line insurers throughout the country have stopped selling California workers’ comp because the market has been so challenging and financial returns so abysmal.

“These are hardly the signs of profitability in California workers’ compensation insurance,” Mahrt noted. “Capital has voted with its feet. The CAAA can claim all it wants that the California workers’ compensation insurance market is profitable – but those assertions are flatly contradicted by the record and the bone-strewn plain of carriers representing a once-great domestic California workers’ compensation industry.”

“One characteristic of California’s workers’ compensation system is unpredictable costs,” Mahrt added. “This is largely due to the inconsistent, litigation-driven process for rating permanent partial disability claims. “If enacted, Governor Schwarzenegger’s legislation to overhaul the system will restore objectivity, consistency and predictability to California’s system for evaluating and rating claims for permanent disability. This would, of course, be a dagger to the wallets of applicant attorneys. So their recent howling about insurer ‘profitability’ – while intellectually dishonest and sad – isn’t really surprising at all.”