By HOWARD FINE
It looks like the long-awaited shakeout in the workers compensation insurance market has arrived, three years after the market was opened to competition.
Several local health maintenance organizations that bought into the workers' comp market have decided to exit the business, including Foundation Health Systems, PacifiCare Corp. and CareAmerica.
Driving these moves has been pressure from two fronts: premium pricing and claim costs.
"The market has driven prices down to a difficult level to make money at," said David Bellusci, senior vice president and chief actuary for the Workers' Compensation Insurance Rating Bureau, a quasi-governmental body that tracks claims costs for both the workers' comp carriers and the state.
Part of the reason is that big national players like CNA Surety Corp., ITT-Hartford Co. and The Travelers Group have entered into the market offering cut-rate prices to gain market share, according to Dale Debber, publisher of Workers' Comp Executive, a Grass Valley-based trade publication. That in turn has forced local carriers to push their prices down.
"To keep their market share, most of the insurers have written below cost," Debber said.
Last month, Woodland Hills-based Foundation Health put its workers' comp line on the block, hiring New York investment house Salomon-Smith Barney to assist in selling the company. In a separate action, Foundation Health also boosted its loss reserves by an additional $75 million for the fourth quarter of 1997 to cover higher-than-expected claims costs.
Two months ago, Santa Ana-based PacifiCare Corp. announced it was leaving the workers' comp business in California, refocusing its Great States Insurance Co. unit (which it acquired when it purchased FHP International last year) exclusively on its out-of-state clients in Arizona, Colorado and Texas.
Another local HMO, Woodland Hills-based CareAmerica, ended its brief foray into workers' comp a year ago, selling off its workers' comp line to Australia-based HIH Winterhur Insurance.
Meanwhile, Santa Monica-based Fremont General Corp., a specialty workers' comp carrier, is focusing more on its out-of-state customers, according to Treasurer and Chief Financial Officer Wayne Bailey. At the outset of deregulation, Fremont had more than half of its customer base in California; now two-thirds are out-of-state, he said.
The price competition has been good for employers; overall, the total premium dollars paid by California employers to workers' comp insurers has dropped from more than $9 billion in 1993 to about $5 billion last year, according to the California Workers Compensation Institute, an industry-funded research center.
Meanwhile, a combination of factors has pushed claims costs up, including higher injured-worker benefit levels and a 1996 court decision that had the result of giving doctors selected by injured workers greater control over the treatment process.
"These doctors, either of their own accord or at the behest of applicants' attorneys, are running longer treatment periods and higher costs than might otherwise be reasonably expected," said Stanley Zax, chairman and president of Zenith National Insurance, a Woodland Hills-based carrier.
For many of the HMOs that got into the business in the mid-1990s, believing that there was a lucrative market in combining managed care and workers' compensation into a single 24-hour care package, the cumulative pressures proved too much.
The only thing that has kept the bottom from falling out of the rest of the market, experts say, has been relative stability in the number of workers' comp claims filed.
"All it would take right now is a slight increase in the frequency of claims for there to be a really big deterioration among the carriers," said Bellusci.
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