A day after California’s insurance commissioner rejected a recommended raise to workers’ compensation rates, the state’s largest writer of such coverage announced it will seek an increase.

The State Compensation Insurance Fund (State Fund) said will request a 5% rate increase in collectable premium for policies effective on or after Jan. 1, 2010, citing “medical inflation” as the main reason.

In a statement, Doug Stewart, State Fund’s interim president and CEO, said medical treatment costs have increased significantly, citing data from the California Workers’ Compensation Institute, and continue “to apply upward pressure to workers’ compensation.”

The average annual median inflation rate is 14% since 2005, according to State Fund, a self-supporting, non-profit organization providing coverage to state employers at cost with no financial obligation to the public.

“We understand the strain that California’s businesses are experiencing in the current economic situation,” Stewart said. “State Fund offers group discounts, a merit rating plan, and lower-than-average premiums in some classifications and industries Because of our size and role in the marketplace, State Fund serves as a stabilizing force in the California economy.”

Steve Poizner

That request comes about 24 hours after California Insurance Commissioner Steve Poizner rejected another request to raise rates for workers’ compensation insurance.

Steve Poizner announced Nov. 9 that he would decline a second consecutive request by the state’s Workers Compensation Insurance Bureau (WCIRB) to raise rates by 22.8% for policies effective Jan. 1, 2010.

WCIRB is an industry non-profit comprised of all of the more than 400 companies in California licensed to transact workers’ compensation insurance in the state.

“One in eight Californians is unemployed,” Poizner said in a statement. “Countless others are also suffering and have either given up looking because they cannot find work or have taken part-time jobs while they seek full-time work. Any increase in costs for employers will only make our already dire economic situation worse.”

The commissioner added that “given these harsh economic realities, I refuse to rubber stamp double-digit increases” in rates, when he was not convinced that cost control reforms from six years ago have yet to be fully implemented.

“At the same time, we see those who are self-insured fully implementing the 2003-2004 cost containment measures,” he said. “They have proven that a very efficient system that is focused on getting injured workers back to work in a cost-effective manner can be created.”

Rather than raise rates, Poizner urged the state’s insurers to utilize cost containment tools and increase efficiency, adding that he had no desire to raise rates until he sees efforts by insurers to use the current tools available to them.

At a hearing in June, Poizner said he heard testimony that indicated “insurers were not realizing efficiencies to bring down costs in the system, including failing to achieve a balance between cost and benefit with medical provider networks and utilization review, and area not communicating effectively with medical providers,” according to his office.

Poizner’s decision is an advisory one, but his department said that history has shown that when the commissioner has declined to increase rates, real-world workers’ compensation insurance rates have increased at a far slower rate than the steep increases requested by the WCIRB.