"California is seeing the effect of several years of insurance company losses on workers' compensation claims, despite the 1993 legislation that was expected to overhaul the system," said Carl A. Santa Maria, president of Risk Management Services for Tanner Insurance Brokers here.

The 1993 reforms, designed to reduce fraud and increase competition among insurers, succeeded in reducing the number of claims by 40 percent, but the cost of the average claim in 1998 rose 47.5 percent, from $17,167 to $25,318, according to a study by the nonprofit California Workers' Compensation Institute. The state insurance commissioner already has authorized an average premium increase of 18.4 percent for next year.

Even higher claims are predicted as a result of new rules, extending benefits for ergonomic injuries, that are expected to be issued soon by the federal Occupational Safety and Health Administration. Santa Maria noted that "Almost every company is expected to increase rates at least 12 percent," Santa Maria said.

What will companies do?

"It's too early to tell what most of our clients will do," said Santa Maria, whose firm provides insurance coverage for companies throughout the Western United States. "But we're finding that almost every major client is going to make changes to reduce costs." The most common option so far is to take more risk, using insurance plans that reward claims reduction. "Companies choosing these plans are working (... ) to review and modify working practices in order to minimize employee injuries and claims," Santa Maria said. Deductibles, rare in workers compensation policies, are another choice.

Santa Maria also expects to see an increase in the number of companies that are going to self-insurance, rather than purchasing insurance on the open market. "If a company has a good record and can qualify financially, it does not have to purchase workers compensation insurance," he explained.

"But for the past five or six years, workers' compensation insurance has been sufficiently inexpensive that some large firms found that it was cheaper to buy insurance than to self-insure. This is no longer the case."