Safety First — Then Come Tough Decisions for S.D. Businesses

We’ve zeroed in on four issues that frustrate a broad spectrum of San Diego businesses, and have dubbed them The Four Horsemen.

Here’s the first one.

Dale Watkins wanted to hand out more raises to his workers in 2015.

A 65 percent spike in Watkins’ workers’ compensation insurance bill from 2013 to 2014 derailed that plan, kicking his bill up to nearly $100,000.

It’s not because Watkins’ company, Sheffield Platers in Sorrento Mesa, has a bad safety record. In fact, it has a stellar one, Watkins said — with a safety rating that’s more than 20 percent higher than the average California electroplating company.

“There’s no reward,” Watkins said. “It’s just penalty no matter what you do.”

Watkins’ plight might be an extreme case – indeed, one insurance executive told me Watkins could be paying more than he needs to and might be able to find a lower rate – but his situation offers a window into a challenge business owners have long decried.

Like most gripes I’ve heard during this quest, workers’ comp is actually a statewide issue – the state offers guidance on rates and then insurance companies decide what to offer customers.

But there’s some evidence the bills might be larger in San Diego than in some other parts of the state.

San Diego County saw a 9 percent increase in claims that kept workers off the job from 2009 to 2012, a factor that can drive up costs. By comparison, other regions – excluding the Los Angeles County area – saw meager increases or even decreases in such cases during that period.

These dynamics play a significant role in companies’ decisions.

Businesses can’t simply pencil in the cost of a worker’s salary and benefits when they want to hire someone or offer a raise. They also have to buy workers’ compensation insurance to cover potential medical costs and disability benefits that might arise if that person’s injured on the job.

In California, the average business owner is paying more than her counterparts in other states – an average of $2.93 for every $100 paid to workers, according to the latest data from the Workers’ Compensation Insurance Rating Bureau of California.

Business owners in states such as North Dakota, Arkansas and Nevada are paying closer to $1 per $100 in pay, according to a separate national study by a state agency in Oregon.

That same report concluded that California has the nation’s most expensive worker’s comp premiums and that companies here pay an astounding 188 percent more than the national medium. The director of California’s Department of Industrial Relations criticized the study’s methodology and said it failed to properly consider California’s unique mix of industries.

California’s higher rates are largely driven by more frequent permanent disability claims, steeper medical costs per claim and higher costs to oversee those claims.

Comparing various states’ workers compensation programs and their relative success isn’t straightforward.

But for California businesses, one reality pervades: The costs are high and they’re getting higher, despite a 2012 state reform bill that aimed to reduce company costs and increase benefits for injured workers.

Average workers’ compensation rates in the state have climbed 40 percent since 2009. The result, some San Diego business owners say, is fewer hires and smaller raises.

Workers’ compensation even became a factor in the fight to raise the minimum wage hike here.

Harry Schwartz, who owns an Ace Hardware store in the Gaslamp District, was on the front lines of that debate.

While Schwartz doesn’t pay any of his workers minimum wage, their hourly rate is tied to it and increases mean automatic workers’ compensation increases too.

Those would come in addition to the annual 10 to 15 percent workers’ compensation insurance rate hikes Schwartz said he’s come to expect each year.

“Because it does come every year we just pretty much have to plan for that,” he said.

Yet the rates have come down since their peak in 2003 when business groups used a moving van they called the “Pink Slip Express” to illustrate pressures they claimed were driving jobs outside the state.

That year, the average workers’ compensation rate spiked to $6.29 for every $100 of pay, according to rating bureau data. The surge followed significant increases in medical costs and eventually inspired cost-cutting reforms to the state worker’s compensation system.

At the time, Watkins, the Sorrento Mesa business owner, described those charges as an assault on businesses.

“Our family has never considered moving our plant out of San Diego – until now,” Watkins said in a 2003 Coalition for California Jobs press release.

Now Watkins’ frustration has peaked again – and his situation illustrates another element of the dilemma: The state offers guidance on what to charge companies but it’s up to the market to decide what they actually pay.

For that reason and slew of others, companies’ insurance bills vary, even within the same industry.

Trindl Reeves, a principal and chief sales officer at insurance brokerage firm Barney & Barney, is convinced Watkins’ company could get a better deal if he shopped around.

Last year, Watkins’ rate increase was almost double what the state suggested for his industry. But Watkins said he did seek multiple quotes. He just couldn’t find a better deal.

Reeves and some other brokers believe things could improve for Watkins next time he seeks insurance quotes thanks to the 2012 reform bill. She expects companies will start to see widespread decreases in workers’ compensation costs starting next year.

Not everyone’s convinced. Insurers want to see lower costs before they reduce rates so it’ll take time to gauge the impacts of the reforms.

A review published by the insurance rating bureau last year suggested the initial changes had resulted in about $200 million in net savings for the statewide workers’ compensation system, though many elements of the reform hadn’t yet been implemented.

Jerry Azevedo, a spokesman for the business-backed reform group Workers’ Compensation Action Network, said it’s too soon to tell if there will be cost savings. Most companies aren’t seeing them yet.

For now, he and other business advocates say, workers’ comp costs will continue to impact businesses’ plans, particularly if they could do some work in another state.

“It very much affects how (businesses) think about job creation and expansion in California,” he said.

This is part of our quest digging into the difficulties – real or perceived – of doing business in San Diego. Check out the previous story in our series, Introducing San Diego Businesses’ Four Horsemen, and the next, Safety First — Then Come Tough Decisions for SD Businesses.