Benefits to California workers injured on the job will increase by at least $2.4 billion by 2005.

Maximum weekly workers compensation benefits will increase from $490 to $602 by 2003 and to $840 by 2005. Death benefits for families of workers killed on the job will also increase — doubling to $320,000 from $160,000. Other provisions of the law include $1.5 billion in cost-saving measures and encouraging injured workers to return to their jobs more quickly.

"I'm pleased to sign into law the first increase in workers compensation benefits since 1996 — and the first increase for permanently disabled workers since 1984," says California Gov. Gray Davis.

Insurance industry response to the new law, AB 749, was divided, with one trade group chastising it for failing to address fundamental flaws in the workers compensation system, while another heralded it as a significant stride toward improving worker safety.

The American Insurance Association (AIA) says that cost savings promised in the law remain on the distant horizon and that the "significant cost increases" of AB 749 will place a "tremendous burden" on California's economy.

"There are many important reforms that were left out of this bill," says Mark Webb, vice president of AIA's western region. "Specifically, we ask the administration to deliver on the promises made to reduce the costs of prescription drugs and of outpatient surgery/facility services."

The AIA estimates the costs of the improved benefits at $3.5 billion — the higher level is due to a projected increase in the use of workers comp benefits — and is calling on California lawmakers to recognize that the workers comp system is overly complex and litigious and that these fundamental flaws will continue in spite of the new law.

"At a time when state and local governments and businesses throughout California are struggling, there must be a commitment to reduce system complexity, litigation, and unnecessary medical treatment," says Webb. "If we are to preserve this system, we must all accept responsibility for its many failures and must now all shoulder the burden for its reform."

Another trade group, the Alliance of American Insurers (AAI), supports the new law because of the reforms to worker safety programs it enacts — hoping to cut the cost of workers compensation at its source.

"Enacting AB 749 makes California the first state to create a new approach to worker safety," says Keith Lessner, vice president of safety and environment for the AAI. "By having the foresight to take a hard look at safety performance, the legislature and the governor have enacted a program that will yield results to match their good intentions."

According to Lessner, the new law will make the workers compensation system more efficient by reducing administrative costs while at the same time improving enforcement and providing better training programs — especially for workers in hazardous industries, non-English speaking workers, and younger employees. AB 749 will also allow insurers to become more directly involved in setting up workplace safety programs, says the AAI.