Mike MacGillivray, Insurance Broker, SMMA

I am an insurance broker (staunchly opposed to AB5) and with the workers compensation portion of AB5 taking effect July 1st, 2020, my firm has been getting a lot of questions on the fines/penalties assessed for not having workers compensation. Though this is certainly not a pleasant topic to address, I thought it might be helpful to provide a little clarity on how workers compensation fines/penalties are administered and levied in California.

I am an insurance broker and my firm writes a lot of workers compensation insurance in a variety of different industries. I was thrilled to see the formation a...nd efforts of the group, as this is a law that has the potential to create devastating, costly consequences for California business owners, not only for businesses that may need to purchase and absorb the cost of new workers compensation insurance after July 1st, 2020 (which they may not be able to afford), but for current workers compensation policyholders. We are already working with clients to help prepare them for the negative ramifications of AB5. Besides the obvious costs businesses will need to absorb for work comp policies they were not previously required to have, many current policy holders may have to cancel their current workers compensation policies and absorb the cost of a short rate penalty so they can re-shop their policies (and those new policy premiums will be much higher). On the workers compensation side, businesses enjoy the ability to 1099 tougher employee classes with larger exposure, so they don't have to shoulder the costs of that increased exposure in their work comp premiums. Due to AB5, they may now have to include these tougher employee classes in work comp policies that are not designed to accommodate them. In these situations, businesses will be forced to cancel their work comp policies, pay a short rate penalty for early cancellation, and re-shop those policies with insurance companies that will accommodate riskier classes. This, of course, drives the insurance premium up for the business. The riskier the operations, the more exposure, the higher the premium. I can cite a recent example working with a client just yesterday: We have a client that works on sewers. His workers compensation policy stipulates that his employees are covered for any work they do up to 8 feet underground. If our client needs any work done past 8 feet, it is subcontracted out to an independent contractor who does the work 8 feet or deeper underground. Due to AB5, our client may now have to convert this independent contractor to an employee, but our client's current workers compensation policy will not provide coverage for any employees that work farther than 8 feet down. Why? The risk exposure is completely different working deeper than 8 feet down. Our client will likely now need to cancel his workers compensation policy, absorb a costly short rate penalty for the cancellation, then we will have to re-shop his workers compensation to find a company that will write higher exposure, and that means a large premium increase, along with the cost of the penalty. With the combination of businesses that now will need workers compensation policies (provided they can shoulder the cost), and the degree to which current policy holders are going to need to re-shop their policies (because they may be adding new employee classes their policies do not accommodate), we are also going to see an absolutely flooded insurance market soon, and insurance companies are desperately trying to prepare. They will need to hire more underwriters, claims adjusters, administrative staff, will need to develop updated claims management and premium audit processes, all of which will cost money. As a result, rates will likely go up, and it will be the businesses paying for it. We are trying to work with clients to get ahead of the flooded market and the additional problems that will cause. The timing here couldn't be worse. The insurance environment is already difficult enough in California. We've seen the implications of the 2017-2019 California wildfires on homeowners insurance premiums, and the many, frequent cancellations of homeowners policies. We've seen businesses crippled with much higher workers compensation premiums as a result of the California Workers' Compensation Uniform Statistical Reporting Plan, effective Jan. 1st of 2017, which has required all first aid and small medical claims be reported to their insurance companies. This has caused an increase in their claims frequency, increases in their experience mods, much higher premiums, and more difficulty and frustration finding insurance companies that will write their work comp policies. The last thing California businesses need in this hard California insurance market is AB5. I applaud the group and its dedication to creating awareness, which is certainly working. I am encouraged by the many efforts already in motion to repeal the law. Please keep informing, educating, and spreading awareness!

Tomorrow at 12:10pm, I have the privilege of joining congressional candidate Eric Early on 870AM's "The Answer" to discuss the impact of California's AB5 legislation on California business owner's workers compensation insurance. Hope you can join us!

Last week, I joined other professionals and entertainers on multiple segments of Good Day LA Fox 11. 6:30a, 7:30a, 8:30a and discussed the impact of AB5 on California business owner's workers compensation insurance, the increased costs associated with compliance of the law, and the impact AB5 may have on the California workers compensation industry as a whole. The workers compensation portion of AB5 takes effect July 1st, and while we are still examining its effects on California's workers compensation industry, we are encouraging all business owners to consult with legal counsel regarding the employee classification, wage/hour, unemployment insurance, and benefits portion of the law which has been in effect since January 1st.

Tomorrow morning, I'll be joining other professionals and entertainers on multiple segments of Good Day LA Fox 11. 6:30a, 7:30a, 8:30a. I'll be discussing the impact of #AB5 on California business owner's workers compensation insurance, the increased costs associated with compliance of the law, and the impact AB5 may have on the California workers compensation industry as a whole. Twinkle Time Singian Law

Great educational seminar this morning for new Los Angeles Community Associations Institute business partners at the beautiful Blair House in West LA #cai #cailosangeles #communityassociationsinstitute #caiglac

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