It’s one holiday present employers could do without.

After years of dramatic drops, L.A.-area employers are bracing for higher workers’ compensation premiums in coming weeks as dozens of insurance carriers raise their rates.

In the last two months, more than 60 workers’ compensation insurance carriers have filed for rate increases with the state insurance commissioner’s office, led by California’s largest carrier, State Compensation Insurance Fund, which plans a 9 percent hike.

In their filings, the carriers cite rising medical costs as the primary reason behind the rate increases.

Just last week, Woodland Hills-based Zenith National Insurance Co., one of the largest local carriers, filed for a 4 percent hike. Earlier, Farmers Insurance Group, the L.A.-based unit of Zurich Insurance Group, filed for a 4 percent increase.

In the largely deregulated workers’ compensation marketplace, insurers must file workers’ compensation rate plans with state Insurance Commissioner Steve Poizner, but he has no veto power over the plans.

All these increases take effect for policies renewing on or after Jan. 1, which means the first policies with these higher rates will be hitting the desks of business owners starting this week.

News of the expected increases is definitely not being welcomed by employers.

“In this economic environment, it’s very dangerous to have these increases,” said Janet Wells, a co-owner of Cerritos-based Insta Graphic Systems, which makes prints for the apparel industry. The company’s last renewal, which carried a single-digit decrease, was in August.

“My health insurance has already gone up nearly 12 percent this year. That really hurts. If we get additional increases with workers’ comp next year, it will be very difficult for companies like ours,” she said.

The last time workers’ compensation premiums spiked earlier this decade, Wells said she was forced to close down a division of her business. She hopes not to face a similar situation this round.

Since a package of reforms to the workers’ compensation system that tightened regulations and tried to rein in medical costs in 2003 and 2004, average premiums have dropped more than 60 percent as more insurers have entered the marketplace. Indeed, over the last two or three years, it’s been a buyers’ market for that insurance, with rates going down for most employers as carriers competed to gain market share.

“Right now, it’s still a competitive market. If one carrier comes in with something higher than you like, you can often beat that price by shopping around,” said Fritz Mutter, managing partner of the Los Angeles office of Irvine-based Millennium Corporate Solutions.

Medical costs

Next year, Mutter expects the market to firm up, especially with policies renewing in the second quarter of 2009 or later in the year.

The chief reason: Rising medical costs are coming to the fore. Although the reforms earlier this decade attempted to reduce medical costs associated with workers’ compensation claims, they actually only acted to slow the rate of percentage cost increases to single-digit levels. This increase was masked by a sharp drop in the total number of claims filed.

“For the last few years, claim frequency has been dropping in California and this reduced frequency has offset much of the increases in the severity of claims,” said Jack Hannan, spokesman for the state Workers’ Compensation Insurance Rating Bureau, a non-profit association of the state’s workers’ compensation insurers formed to track industry trends.

But, Hannan said, “it now appears that the large year-to-year declines in frequency are moderating, and, as a result, total medical losses are increasing.”

In short, the reforms have largely played out.

As a result, the bureau in October recommended a 16 percent increase in the basic premium rates carriers charge their employer customers.

But state Insurance Commissioner Poizner rejected the bureau’s analysis as too pessimistic and instead recommended carriers hike their rates by 5 percent.

Other factors are expected to put upward pressure on rates next year. Insurance carriers typically invest premium dollars, and as the markets have tumbled, insurers have recorded mounting losses in these investments.

“As investment income decreases, there will be more pressure put on the insurance companies to charge more in premiums to generate an underwriting profit,” said Mike Noland, president of the California Workers’ Compensation Institute, an industry research group.

What’s more, as layoffs mount in coming weeks and months, companies will have less people to cover, thus reducing premium payments. To offset this, insurers may have to increase their per-person rates in order to minimize risks associated with client companies. But these rate increases aren’t likely to be flat across the board. Rather, brokers say, employers with a history of expensive claims, or in high-risk industries such as roofing, will bear the brunt of the hikes.

“If you have a poor claims history or are in a high-risk industry, the happy days are definitely over for you,” said Mario Guerra, president of Woodland Hills-based Scanlon Guerra Burke Insurance Brokers. “The best you can possibly hope for next year is to hold your increase to single digits, and even that will be doubtful.”

To guard against this, some employers have beefed up their safety programs in recent months in an attempt to keep a lid on claims.

“We’ve hired a new operations manager and have instituted more worker safety programs this year. We definitely don’t want to see our rates go up,” said Patsy Flanigan, president of Culver City-based Flanigan Farms, which has a locally based packaged health foods business and runs a farm in the Central Valley.