Jennifer Magallanes expected that her company’s spotless record of no injuries for four years would keep her workers’ compensation insurance premium low. But Magallanes was jolted in early July when she slit open her insurance bill and found her premium had shot up 78 percent to $116,000.

She’s not alone. Across Los Angeles County and throughout the state, many employers are getting hit with sharply higher premiums – despite last year’s reforms that were supposed to keep workers’ comp costs in check.

“This is the highest percentage increase we ever received and it was truly a shock,” said Magallanes, who is president of a 60-employee tool-making company in Baldwin Park named American Kal Enterprises. “The reforms definitely aren’t working in our favor.”

Magallanes shopped around but was unable to find anything cheaper.

“It’s like gas prices – it keeps going up but you have to pay it, so what could we do?” she said.

A Business Journal spot survey of local employers found several got premium increases exceeding 40 percent within the last 10 months. Some employers were able to reduce the increases after shopping around; others, such as Magallanes, have not been so lucky.

That’s in contrast to expectations inspired by a leg islative reform package, SB 863, signed by Gov. Jerry Brown last year. Business groups hailed the bill, saying it was a victory in their efforts to rein in the costs of workers’ comp.

But the reforms won’t go into effect for years. In the meantime, insurance market forces and ever-rising medical costs have trumped any hoped-for savings.a

“The market is definitely hardening,” said Stuart Baron, an attorney who founded Los Alamitos consulting company Workers’ Comp Claims Control Co. “Premiums are going up and it is becoming tougher and tougher to find bargains.”

Brokers and consultants say a combination of forces is driving up premiums. Both the frequency and the average cost of workers’ compensation claims have been rising, with the total average cost of a claim topping $81,000 last year, according to data from the state Workers’ Compensation Insurance Rating Bureau. That compares with $54,000 in 2005.

Despite rising claims costs, insurers for years have been underpricing their workers’ comp policies in attempts to gain market share among the state’s more than 200 carriers. Now many insurance companies are raising their premiums.

“Insurance companies as a whole looked at their operating results from the last few years and are saying they did something wrong here,” said Mark Webb, general counsel at Thousand Oaks workers’ comp carrier Pacific Compensation Insurance Co. “They concluded they had to have more discipline in premiums, which can create more sticker shock.”

Also, insurers have refined their pricing models. For example, they home in on geographic locations where litigation costs are highest and raise premiums there.

What all this means for employers is that their premiums are no longer just tied to their own record of claims. Now, companies with spotless records can still get hammered: either because they are in the wrong ZIP code or in an industry segment with high litigation, or have a carrier with claim expenses outstripping premium revenue.

“Regardless of what an employer does, they can still get hit with major premium increases,” said Doug Simons, vice president with SGB-NIA, an insurance brokerage in Woodland Hills.

Small employers hit

That’s just what happened at the Valley Industry and Commerce Association, a non-profit in Sherman Oaks that represents businesses in the San Fernando Valley. Chief Executive Stuart Waldman said Vica’s premium for its seven employees rose 59 percent when the policy renewed this summer. While the premium is still less than $10,000, Waldman said he was shocked at the increase and even more so when he shopped around and couldn’t find anything cheaper.

“We’ve had no claims in the five years I’ve been here and we’re in an office environment, so there’s nothing that we were doing that could have accounted for this,” he said. “It’s annoying to say the least.”

One reason small employers such as Vica have been slammed so hard is the ever-rising average claim costs.

“With the average claim now totaling more than $80,000 over the life of that claim, carriers are having a hard time justifying writing premiums for less than $10,000,” Simons said. “Even one minor claim that’s resolved quickly will still cost tens of thousands of dollars, completely wiping out the premium revenue.”

Last year’s reforms, hammered out between major employers and organized labor, were designed to rein in the cost of claims by tightening requirements of physicians, outpatient surgery centers and even plaintiff attorneys. The reforms include a requirement that all disputed claims go before an independent panel. On the other hand, workers who have been permanently injured have been getting higher weekly checks, starting Jan. 1.

So the benefit increase kicked in almost immediately while any savings are still two or three years away.

Since bottoming out in 2005, the cost of claims soared 50 percent a claim. Even though fewer people are working, the number of claims filed has risen. The number of claims filed in 2009 shot up 9 percent from the previous year, according to the rating bureau.

“What happened is that people who got laid off filed claims against their former employers, alleging cumulative trauma,” said Claims Control’s Baron. “Since there was no way they could prove a specific injury tied to a specific event, they essentially argued that their bodies wore out on the job. With prompting from plaintiff attorneys, they were grasping at anything that could get them money.”

In most cases, employers had no warning that these claims were coming.

“We got hit with three post-termination claims in the last two years,” said Howard Lind, owner of Cicoil Corp., a Valencia manufacturer of cable for the aerospace and industrial robotics sectors.

Lind said his carrier immediately classified the claims as fraudulent and chose to fight them. However, his renewal in October doubled anyway, to about $80,000. Lind shopped around and found another carrier that charged only $70,000, still an increase of 75 percent.

Lind said that as a result, he’s had to curtail hiring.

“There’s more demand for our product, but I just can’t afford to hire anyone now with this workers’ comp bill.” he said. “And the worst part of all is that there was absolutely nothing I could have done since there were no workplace accidents.”

Other employers have tried to clamp down on post-termination claims. At Kirkhill Manufacturing Co., a rubber parts maker in Downey that employs 115 people, human resources director Liza Reker said she requires departing workers to sign a document stating they have not been injured on the job. Despite that, Kirkhill still received a post-termination cumulative trauma claim.

When it came time for the workers’ comp policy renewal, the premium rose more than 30 percent to $400,000, she said.

Shopping around

In Kirkhill’s case, it paid to shop around.

“We found a carrier willing to take our business and charge around 10 percent less than what we were paying,” she said.

Comparison shopping also paid off for Ryan Gaytan, vice president at Gaytan Foods, a Hispanic snack-food maker in City of Industry.

In November, Gaytan’s carrier presented a renewal premium of nearly $300,000, up 70 percent from the $178,000 the company had been paying.

“Still in shock, I immediately contacted my network of business associates and fellow entrepreneurs,” Gaytan said. “One of my contacts referred me to one of the few remaining carriers that write direct policies. This carrier offered me a quote of $180,000, just 1 percent above what I had been paying.”

Gaytan said he is expecting a 10 percent increase when his policy gets renewed this fall.

But for employers who can’t find cheaper coverage, the only thing left to do is cut costs. At tool maker American Kal, Magallanes said the company is reducing overtime and trying to save money however else.

“Ironically, we had allocated in our 2014 budget some money for an improved worker safety program,” she said. “Now, with this premium increase, we can no longer afford that program. It’s very sad.”