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A CRISIS IN WORKER’S COMPENSATION
How our Governor is working to solve this issue with David McDonald

President Louie Capuano welcomed the best club members to the meeting at 12:30. The Pledge The Pledge was led by Terry Galazzo.

The Rotary Moment

David McDonald offered the following words:

"Freedom is never more than one generation away from extinction. We didn’t pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children and our children’s children what it was once like in the United States where men were free."

-Ronald Reagan

Visiting Rotarians Ray Mattison introduced our three visiting Rotarians from other clubs around town.   Guests of Rotarians "Inner Wheel" members Sharon Herndon, Ursula Mattison and Ann Fisher were introduced.

Sharon	Ursula	Ann
Also introduced were exchange students from Finland and France: Suvi and Sarah.

Announcements

Prez Louie announced that we will be dark on July 5^th.
There will be NO ROTARY MEETING ON THAT DAY.

Tarina Hall announced a short Crab Feed meeting at the "Marigo" table following today’s meeting.

President Louis announced the President’s Meeting at the Vineyard Inn at 10:30 before the District Governor’s Conference luncheon. Reservations are needed if you plan to attend Friday’s luncheon.

Don and Gail Johnson will host a welcome of the Brazil Team at the offices at 1 Santa Rosa Avenue on June 17^th beginning at 6PM. There will be band music, food, and wine.

Multi-cultural Child Development Center (Director: Anne Abrams) in the amount of $2,000.00 to match their Annual Fund Drive. Funds will provide program enrichment and assist in maintaining their preschool facility. Anne thanked all members for their support over the years. Sharon Herndon of the Inner Wheel. Sharon explained some of the programs the Inner Wheel supports: Quilt Guild makes quilts for children and seniors at Sutter Hospital, Valley of the Moon Children’s Home, and the Council on Aging. Inner Wheel also supports a camp for teaching and learning for disabled children, the Forget-Me-Not Farms intervention program for at risk children, the

Multi-cultural Child Development Center (preschool), A Children’s Place (YWCA child care center), and the Inner Wheel National Electronic Limbs program for economically disadvantaged children. Sharon invited any interested spouses to join their meetings which meet monthly, alternating day and evening meetings. Sharon also announced that the Inner Wheel would sell Crab Feed Raffle Tickets again this year to the delight of Tarina Hall, Crab Feed Chairperson.

Our Sunshine Chair Bob Marigo asked us to observe a moment of silence to honor the passing of Past President Mike Moore’s wife Jan's sister, who passed away suddenly. We are thinking of you Jan & Mike…

$10- to Robin Marrs for having returned to the club speaking fluent  French.

Raffle

PDG John Withers drew the marble (alas, not the black marble) and missed winning $650.
Hot tip: buy raffle tickets next week, there’s only 8 left.

Ann Fisher, Bill’s wife won a bottle of DeLoach chardonnay.

David McDonald graduated from college and went into the Insurance business in 1986. In 1999 he bought his company, doubled business and moved into a new building recently. He works 70% in commercial and 30% personal insurance. .

Prior to 1995 Workers Comp Insurance rates were regulated and companies gave back a percent of dividend premiums based on a company’s safety performance. After 1995 the industry was deregulated and companies competitively set their own rates. Stability in the industry was based on three things 1) Company loss ratios (losses/earned premium) 2) Company assets, how strong stock portfolios were and 3) Reinsurance contracts or "umbrella insurance for carriers," where, for example, the company would pay the first $300,000 on a claim and the reinsurer would pay the rest up to a $1 million. This meant companies didn’t need as much in reserves, and rates for Worker’s Comp insurance dropped.

The market was upset when three things happened at once: Losses took a 3-year delay to come to fruition. The Stock Market tanked. And then we had 9/11.

By law, State Comp Insurance Fund, a quasi-public non-profit company, is the insurance carrier of last resort; it has to offer insurance to employers who can’t get coverage elsewhere. Open competition under deregulation drove rates down. Average rates are now$6.39/$100.00 of payroll, an increase of 28% in the last 3 years. The average total claim is now $65,000, among the highest in the United States. At the same time, California has among the lowest benefit levels for claims.

Garamendi established new regulations and rates were expected to drop 20%. However the California Insurance Rating Bureau recommended rate reductions of only 2-3%. The Bureau worries reserves set aside by California WC carriers are not adequate.

David then opened the program up for questions and a number of members had some excellent ones that he did an outstanding job of answering. He explained that what happened to initiate change in 1995 was that the California legislature tried to bring in competition in a heavily regulated market. They did a halfway fix but with no loss controls. There is a great disparity between rates for example for roofers between different states. Arizona has the lowest rates in the nation while California has the highest rates. California worker’s comp regulations are 3 inches thick with complexity, while Arizona has simple unambiguous ½ inch stapled regulations. The Labor Codes reflect the amount of litigation in each state.

One recent change in regulations is that a presumption that the benefit of the doubt should go to the injured claimant has been stricken down now and decisions are now on the preponderance of evidence.

California experiences a high level of fraud. California has a high rate of fraud, including fraud by employers. The Insurance Commission has report states that it is not doing fraud enforcement as well as it should.

While doctors used to bill insurance companies for their full fees and be paid; now billing is indexed to Medi-Cal rates +25%.

With all the changes to the law, insurance companies are wondering, what the rules of the game are. What will be unintended consequences of the new laws? Because of the uncertainty, in the unregulated market, rates are not coming down as much as Garamendi hoped.

Governor Schwarznegger’s changes:
1) Loop holes closed
2) Medical expenses to doctors are Medi-Cal +25%,
3) Liberal interpretation of laws to benefit claimant repealed
4) only the percent of disability due to work injury vs. the entire disability is covered by WC.

It will take 3 years for claims under new rules to work through the system. Some new rules do apply to old claims.

What can employers do to keep their rates down?

It used to be that if you left State Fund you could go back. But now, if another company will write you a policy, you cannot come back to State Fund. You need a letter of cancellation of insurance first in order to come back.

All agree it is a complicated and challenging issue for California and anyone who must deal with this system. David McDonald invites you to call if you have any questions at 707/284-5900 or email at
DAVID-MCDONALD@ LEAVITT.COM.

Prez Louie ended the meeting at 1:30. The Crab Feed Committee meeting is to follow this meeting.

Your Bulletin Reporter, Anne Abrams		Your Bulletin Editor, Jim Valinoti

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Changes or comments?

Contact Jim Valinoti at valinoti@sonic.net or (707) 829-2300.

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