California Workman’s Compensation Laws Reformed

California business owners spotted trouble four years ago when the ballooning cost of workman’s compensation insurance clouded the horizon like some mutant, completely unexpected closeout set.

But since then, the unrelenting pounding retailers of all types have taken not only captured the attention of the California state government, but was used as a cautionary tale for the rest of the country as well. And while we like to think of surf shops as being different and maybe just a little more special than other types of businesses, the situation left many owners frantically scrambling for a way out of an increasingly deep balance-sheet hole.

In 2000, Becker Surf Owner Dave Hollander paid 17,000 dollars for workman’s comp insurance for his five stores. That figure leapt to 27,000 dollars in 2001, accelerated to 43,000 dollars in 2002, and reached the nosebleed height of 75,000 dollars last year. “Now, granted our payroll has gone up a tad, he says, “but this is all about fraud and lawyers and greedy cons that work the system.

Over at Sun Diego, Owner Dave Nash watched his workman’s compensation premiums increase from 39,000 dollars to 124,000 dollars over that same time period. “Just like the gas prices in San Diego being the highest in the nation, California seems to be the state of choice for the ridiculous rate increases, says Nash. “Are we the only state with fraud, lawyers, and cons?

Retailers say that the increases in workman’s comp are almost impossible to absorb and make a direct and sizable impact on the bottom line—and to their ability to hire staff and provide them with benefits. “The cost of worker’s comp and all other insurance increases has been killing us and our ability to give our employees other benefits they so deserve, says Mikke Pierson of ZJ Boarding House in Santa Monica, California. “It feels to me that the gains we’ve made recently in margin and turnover have all gone to just pay increasing insurance costs.

Nash and Hollander agree that there’s really no viable strategy to offset the increases. “It’s an expense — a large expense — and it hits your bottom line and cash flow hard, says Nash. “How do you make it up? You don’t if you’re already working hard at keeping your margins high and your turnover rates where they should be.

Clearly California business owners needed something big—and something dramatic—to turn the tide of the battle. They needed someone who could grab the M60 machine gun of tort reform and grease the 91-year-old worker’s comp program. They needed someone who could guarantee victory.

Like the kick-ass-and-take-names characters he made famous in all those blood-and-guts action movies, California Governor Arnold Schwarzenegger tackled the issue head on and promised to reform the entire worker’s comp situation—with or without the legislature’s help.

While simultaneously working for the passage of SB 899—the workman’s compensation bill authored by State Senator Chuck Poochigian of Fresno—Ah-nold was also posting up in front of Wal-Mart to tout his proposed workman’s comp initiative that would have taken an even more pro-business reform package directly to the voters in November. According to the Sacramento Bee, sponsors of the proposed ballot measure said they gathered enough signatures to qualify the measure, but it was dropped when lawmakers passed SB 899 on April 16 after a few marathon legislature sessions that lasted until the early morning hours.

“It was because of all those signatures that drove this legislative agreement, Schwarzenegger told the crowd at a Boeing factory where he signed SB 899 into law. “We’re cleaning up the system. We will terminate the fraud and abuse that was going on in the system. Those who were gaming the system, we’re saying, ‘Hasta la vista,’ because the game is over.

Come on, can you ever get tired of Ah-nold quoting movie punchlines?

While Schwarzenegger was taking his victory lap, surf-shop owners sought to understand the dollars and sense of the bill. Some details were easy to cobble together: according to the Bee, the bill guarantees immediate medical care for injured workers, while requiring most of them to choose doctors from a company-approved pool of physicians who would base diagnoses and treatment on nationally recognized standards.

But that’s the minutia. What’s the big picture and should retailers expect a big rollback on those skyrocketing rates? No one seems to know—not even the government.

“We are encouraged this legislation will generate long-overdue cost savings in the system, says Nicole Mahrt, director of public affairs for American Insurance Association Western Region. “Over the next few weeks, the Workers’ Compensation Insurance Rating Bureau {WCIRB} will use their expertise to conduct a comprehensive analysis of the reforms in this bill. Immediate, conclusive savings predictions are premature and speculative. We must allow the WCIRB to conduct the appropriate actuarial analysis before we can understand the scope of the projected savings.

Dave Hollander says he just met with his company’s risk manager: “He’s been doing this for twenty years, and when I asked him to what extent the new law will help, he said, ‘No one knows. We’ll just have to see how things shake out,’ or something like that. The point is, no one knows. They all have to take their calcs and see what it all means.

But one thing seems certain: the bill won’t roll back the cost of workman’s comp insurance to 2000 or 2001 levels. At best most predict a more modest twenty- to 30-percent reduction. While every bit helps, it’s clear that running a small retail business is increasingly tough and even Ah-nold sound bites can’t change that.