Workers' comp hikes spur relocations

The high cost of workers' compensation insurance is driving more California companies to consider relocating to Nevada.

"We've been really, really busy lately," said Chuck Alvey, president and CEO, Economic Development Authority of Western Nevada in Reno.

"We've been getting half a dozen to a dozen calls a week and workers' comp is one of the reasons why they're calling."

"The first thing [California companies] tell you is they want to get away from workers' comp," said Kimberly Elliott, manager of prospect development at the Nevada Commission on Economic Development in Carson City.

Workers' comp insurance rates in California have jumped between 50 percent and 100 percent in the last year, depending to whom you're talking.

"Companies complain to us a lot that costs have gone up substantially, by 50 percent depending on the carrier and the employer," said Richard Stephens, spokesman for the Division of Workmen's Compensation in the California Department of Industrial Relations in San Francisco.

"By and large, they've gone up quite a bit."

Alvey said Employers Insurance Co.

of Nevada, the largest workers' comp underwriter here, recently made a presentation to EDAWN, saying that rates in California doubled in January and are expected to be bumped up another 40 percent in July.

"There is disparity between all states and considerable disparity between Nevada and California," said Phil Levigne, communications director at Employers Insurance, headquartered in Reno.

It's difficult to compare workers' comp insurance rates between Nevada and its costlier neighbor.

California has its own rating agency - the Workers' Compensation Insurance Rating Bureau of California (WCIRB California) - that advises insurance carriers on rates.

Nevada, in contrast, relies on NCCI Holdings Inc., a national insurance rating company used by the majority of states.

The two states also use different job classification systems, making it almost impossible to compare rates by job types, which have a significant impact on costs.

"But, in general, workers' comp rates here are about half what they are in California," said Janice Moskowitz, lead actuary for the property/casualty section of the Nevada Division of Insurance in Carson City.

"I've had a bunch of calls in the last few months from insurance agents with clients in California," she said.

"They've asked to compare a few class codes and, anecdotally, rates in California are twice what they are in Nevada in most of the classes."

And, as EDAWN's Alvey noted, California's rating agency is planning to advise another rate increase.

"We're proposing to the Department of Insurance a pure premium rate increase of 10.1 percent," said Jack Hannan, communications director at WCIRB California in San Francisco.

"We have a hearing on May 8 and they can accept or reject or modify that."

The pure premium rate is only the loss portion of the rate, said Hannan, which includes medical costs and indemnity, or lost time.

Carriers, if they chose to implement the increase, would then add to that costs of doing business, such as overhead and taxes.

That could pump the rate increase as high as 40 percent.

California isn't alone.

Costs for workers' comp insurance, like all insurance, is going up everywhere.

But the state has a unique history affecting its rates.

In the early 1990s, the state had a minimum rate law and workers' comp rates were rising.

So California eliminated the rate law and created the system of advisory premium rates it uses now.

"When rates were deregulated there was all this cutthroat competition by carriers," said California workers' comp division's Stephens.

"It was great for employers."

But then carriers began to have problems.

In 2000, Superior National, the state's largest workers' comp insurer, went under, and the next largest, Fremont Compensation, was shaky and fell under the supervision of the state's DOI.

The state-run underwriter, the State Compensation Insurance Fund, which is supposed to be the insurer of last resort, has been swamped with requests it may not be able to fulfill.

"Some businesses are having difficulty finding insurance at any cost," said Employers Insurance's Levigne.

Then last year California passed a bill raising workers' comp benefits that reportedly adds about $1 billion in costs.

Now the state legislature is considering something close to 50 workers' comp bills, including bills that would set fee structures for surgery centers and pharmaceuticals as ways to rein in rising medical costs.

"It is one of the biggest, if not the biggest, political issue here," said Stephens.

In contrast, Nevada has at least 150 carriers that write workers' comp insurance and, as a result, a very stable market.

That gives it high marks, according to researchers.Work Loss Data Institute recently released a study based on government data on injuries and illnesses.

Called "State Report Cards for Workers Comp", the report grades each state on its workers' comp performance.

That, at least, provides a way to compare Nevada and California.

The results? California: F, Nevada: A.

California's costliest jobs The following are the top 10 loss cost rates in California.

The rates are per $100 of payroll and cover medical and indemnity.

Premium rates are higher since carriers add more costs such as overhead and taxes.

Job classification 2003 2001 Roofing- less than $20 per hour $52.16 $42.75 Carnivals and circuses $47.38 $40.57 Carnivals and circuses $41.71 $33.62 Iron or steel erection -structural- under 3 stories $40.70 $29.42 Tree pruning repairing and trimming $34.82 $31.76 Carpentry- Less than $22 per hour $34.33 $28.69 Steel framing- light gauge- commercial $34.33 $28.69 Telephone, telegraph, fire alarm construction $31.18 $25.02 Source: Workers' Compensation Insurance Rating Bureau of California