California in Quandary Over Workers' Comp

by Jack Shinar

California horsemen could be facing a hefty increase in the amount they pay toward workers' compensation insurance if they are unable to reach an agreement with a new high-risk policy carrier by the time contracts expire with their current representative March 1.

Legion Insurance Co. of Philadelphia, Pa., has informed workers' compensation policy holders--two-thirds to three-quarters of all racing stables in the state--that their premiums, worth about $8 million, will not be renewed after expiration.

Jim Ghidella, Northern California representative for the Thoroughbred Owners of California, said that if a new carrier isn't located, workers' compensation insurance protection, which is required by law, would be shifted to the state insurance fund. Costs could triple.

For an industry that has experienced an 80% increase in workers' compensation rates over the past three years, such damage could be overwhelming, Ghidella noted. On average, 43% of a barn's payroll in California goes to workers' compensation insurance, he said.

"It will get to the point where purses don't justify what it costs to run a horse," Ghidella said.

California workers' compensation law differs from much of the nation because jockeys are considered employees of the stable for which they are riding rather than independent contractors, Ghidella said. And it is the high-risk nature of the profession that has created the insurance problem.

"When jockeys get hurt, that often means serious problems--(quadriplegic) injuries, even death," Ghidella said. "If you look at the claims, by far the largest number of serious ones are filed by the people who ride the horses."

California horsemen currently pay a base rate of nearly $94 per ride for workers' compensation insurance, according to the TOC.

San Francisco, Calif., broker John Unick says the insurance business has shied away from handling high-risk assignments such as racing operations in recent years. After the attacks of Sept. 11, they have pulled back even more.

"The premium doesn't justify the cost of the claims," Unick said. "This is part of a complete cycle that began a few years ago. It's a crisis now. But high-risk insurance rates will come down again."

Unick, who represents MOC Insurance Co., said he is negotiating with an agency that specializes in high-risk policies to provide the needed coverage. He said he could not identify the potential insurer or provide any rate quotes.

"We're very close," he said of an agreement with the agency. "But it's a very tricky situation. There aren't a lot of options available (to horsemen), and they know there aren't a lot of options out there, so until we have something binding, I really can't say anything."

But Ghidella said rates with the new company could be 15% lower than the current quote from Legion, which replaced Golden Eagle Insurance as the exclusive agent three years ago.

He said that at horsemen's urging, racetracks could form a statewide coalition to provide at least partial self-insurance to help defray some trainers' insurance costs. The plan being circulated could mean an increase in pari-mutuel takeout of .73 of 1%, according to a racing association executive.

"This is something I've been working for since last year, but I haven't been able to get anywhere," Ghidella said. "The tracks are listening now. I think they didn't see the emergency a year ago. But there is some common ground now. The tracks need to be involved, and now the tracks want to be involved."

Unick said racetracks would put up collateral for self insurance and take control of their own costs. As rates decline, the insured would pay less, he said.

Legislation that would have given the state's horsemen and track owners the ability to raise or reduce takeout was vetoed last year by Gov. Gray Davis. But Rod Blonien, the TOC's legislative consultant, said the plan may be reworked.

"Everything (the TOC) is trying to do is aimed at bringing back the bettor," he said. "Increasing takeout is not going to do that, but we need to do something about workers' compensation."