Workers’ Comp Hikes Prompt Revisions

Workers’ Comp Hikes Prompt Revisions



Firms Struggling With Cost of Doing Business

By JACQUELINE FOX



Staff Reporter

It’s been nearly two years since Mike Quiroga, owner of Mike’s Roofing Service Company Inc. in Van Nuys, has seen a profit.






Breaking even quarter-over-quarter, he says, is becoming a familiar refrain. He’s had to lay off two workers in the last 60 days and says more cuts are likely over the next few months.






But it’s not war jitters or even the murky economic outlook behind the downturn. Instead, it’s the rising costs of his Workers’ Compensation premiums that are causing the pain and, based on state projections through 2006, things are going to get worse before they get any better.






“This is a really, really difficult issue for us,” said Quiroga, who started the company 30 years ago. He said he paid out roughly $40,000 a month to cover workers’ comp premiums for his 17 employees in 2002, up from about $30,000 a month the previous year. And he’s not alone. Small businesses across the Valley are scrambling to find ways to cope with the rapid rise in premium costs despite the fact that claims are actually down by half of what they were a decade ago.






Premiums have been increasing sporadically for a few years. But new legislation that took effect Jan. 1 has upped the weekly amount all insurers must pay out to workers on temporary disability from $490 in 2002 to $602. By 2006 the weekly benefit will climb to $840 a week, according to state statistics.






The increases, experts say, are designed to make up for deregulation of the industry in the 1990s that triggered a price war, sent many smaller carriers packing and ultimately led to substantial cuts in benefits for California workers due to a lack of competition.






The few carriers left in the state that offer workers’ comp must pass increases on to employers because they, too, are taking hits on profits as costs per claim increase.






Zenith National Insurance Corp. in Woodland Hills, for example, recently reported a $7.8 million loss, or 42 cents a share for its fourth quarter ending December 31 due to 2002 increases in its policy loss reserves.






Larger employers are better equipped to absorb the premium increases. It’s the smaller companies, such as Quiroga’s, that are being hit the hardest on the other end.






Premium rates are based on the type of business and the number of employees, and differ from worker to worker within a company, depending on what their job is.






According to the Workers’ Compensation Insurance Rating Bureau (WCIRB) in Sacramento, roofing companies are among the highest paying category because of the high-risk of injuries.






In 2001 the industry paid an average of $42.75 in workers’ comp premiums for every $100 of their weekly payroll in California. This year, the figure is going to be closer to $53.






But Quiroga is already paying above the average at about $68 per $100 of payroll for his roofing staff. By contrast, he pays an average of about $1.65 per $100 of payroll for his two office workers.






“I’m managing to keep it below 100 percent, but it’s still hurting us,” he said.






Layoffs are one way to mitigate the increases, and Quiroga says he’ll likely implement a second round of cuts in the next few months. He’s also had to raise his prices by as much as 35 percent over the last six months, which is taking a bite out of sales.






“The little guys that have two partners working for the company don’t have to pay workers’ comp., so they are able to offer lower prices, which is driving some of my business away,” said Quiroga. He would not release revenue figures.






According to Jack Hannan, an analyst with the WCIRB, a research agency that supplies data to the office of the State Insurance Commissioner, compensation for the artificially low prices sparked by deregulation is only part of the bigger picture.






He said although the number of workplace injuries has dropped, the severity of workplace injuries has soared. Meanwhile, the cost of medical care has also been climbing, so claims are more expensive and typically a worker is out for extended periods of time.






According to bureau statistics, insurers paid roughly $12 billion in workers’ comp. claims in 2001 in California, the last full year reported, up from $9 billion in 2000. The figure for 2002 is expected to be around $15 billion or higher.






“We are coming out of an environment where the price that an employer would pay for a policy had been lower than it probably should have been for some time,” said Hannan. “But also, as the phenomenon of low prices in the industry has changed, the costs of treating injuries has also been on the rise, which is making it more expensive to cover a claim.”






The fraud factor






Not exactly, says Willie Washington, a lobbyist with the California Manufacturers