Bill to Implement Federal Financial Services Reform

THIS WEEK IN SACRAMENTO

Prepared by Norwood & Associates

October 3, 2026

Pure Premium Rate Hearing Continued

On Wednesday, a day after Governor Davis signed the workers' compensation insurance reform package, the Department of Insurance held a hearing in San Francisco to determine just how valuable the legislation would be to employers. The hearing was held for the purpose of approving an advisory pure premium rate to be reflected in rates for next year.

At the hearing, the Workers’ Compensation Insurance Rating Bureau (WCIRB) recommend eliminating next year's proposed 12 percent increase and recommended a 2.9% reduction in current rates. The WCIRB estimated $3.5 billion in cost savings from quantifiable reforms, justifying the 2.9% decrease in the advisory pure premium rate. The Insurance Commissioner, however, called for steeper rate reductions, citing other reforms ignored by the WCIRB.

The difference in opinion centers on some of the more amorphous reforms where cost estimates are difficult or impossible to come up with. The WCIRB and insurer actuaries agree these reforms will reduce costs, but argue no evidence is available at this early stage to show by how much. They would prefer to let actual experience show whether these elements reduce costs, and are skeptical of attributing large cost savings before real data is provided. The hard to pin down reforms are:

· Medical treatment guidelines.

· Spinal surgery second opinion procedures.

· Elimination of outpatient self-referrals.

· Expansion of carve out programs.

· Fraud reduction efforts.

The Insurance Commissioner, feeling pressure from employers and the Legislature to get immediate results in dropping rates, is doing his best to get some cost savings for these elements reflected in the pure premium rate. As is appropriate for his role as Commissioner, he is doing everything he can to jawbone rates lower and emphasize data justifying steeper reductions, even if insurers view the data as the product of fuzzy math.

The Commissioner, not satisfied with the 2.9% reduction, continued the hearing until the end of October to give the WCIRB and insurers more time to develop cost savings estimates for some of these harder to gauge reforms. Insurers need a two-month lead-time to incorporate the advisory pure premium rate into their own 2004 premium rates

The Commissioner's goal is to not only eliminate the12% increase recommended by the WCIRB for next year, but most of the 7.2% mid-year increase. Insurers argue if the Commissioner goes beyond the hard numbers to reduce rates significantly beyond the 2.9% recommended by the WCIRB, insurers considering expanding into California will delay the plans.

Mold Insurance Coverage Mandate Still Subject of Legislative Interest

Mandating insurance coverage for "toxic" mold became a dormant issue this year, but could reemerge again next year. The trial lawyer champion on this particular issue, Senator Deborah Ortiz, quietly dropped her mandate bill, SB 850, after it passed the Senate and faced a hostile hearing in the Assembly Insurance Committee.

There could be several reasons why the mold coverage issue is being pushed back to next year. First, faced with a tightening homeowners' insurance market, the trial lawyers may have made the strategic decision to wait until next year when the market is better before they start squeezing again.

Secondly, insurers successfully stopped mold mandate legislation in the Assembly Insurance Committee last year by convincing moderate Democrats that mold mandate legislation should only be considered after an unbiased, independent scientific study was conducted. Some insurers even generously offered to fund such a study by the Department of Health Services. Now that some of the pressure is off, those insurers have lost their temporary streak of generosity, and the DHS study isn't even close to getting funded.

Trial lawyers will most likely come back to the Legislature next year with a big "I told you so." They will say that insurers simply used the promise of funding an independent scientific study as a stalling tactic, and now that two years have passed with no progress, the legislature should jump in and act.

Ironically, the fact that the mold issue has gone dormant while insurers have gotten a handle on mold claims may also play into the trial lawyers' hands next year. Trial lawyers will be able to push a mandate as a way of narrowly targeting only the bad actors, and that it will not have widespread economic repercussions as insurers so vociferously argued two years ago.

Insurers such as State Farm and Safeco that were limiting their business in California are loosening the new business spigots once again. One of the reasons being cited for getting back into the market is that insurers are learning how to handle mold claims and reduce costs. Similarly, builders are putting more effort into designing and building homes to limit water intrusion and mold problems. The public panic also appears to be easing a bit. For example, Erin Brockovich, who campaigned with Insurance Commissioner John Garamendi on the mold mandate issue during the last election, just settled a "toxic" mold case involving her home for $130,000. For someone like Brockovich, this is most likely a "nuisance" value settlement and an indication the case was in trouble had it gone to trial.

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