Rejecting the Workers Compensation Insurance Rating Bureau’s (WCIRB) call for a 16 percent increase in the benchmark for determining workers’ compensation costs, California Insurance Commissioner Steve Poizner accepted a more moderate 5 percent increase to reflect higher medical and claims adjustment costs to the system.
“Last year, experts predicted that loss adjustment expenses would increase dramatically. They did not,” Poizner said. “This year, experts have predicted accelerating increases in medical costs. Given the accuracy of past forecasts, I will wait for clear and compelling data confirming such increases before significantly increasing the Workers’ Compensation Claims Cost Benchmark.”
To more accurately define the estimated change in claim costs that develop in the workers’ compensation system, the “pure premium advisory rate” has been renamed the “workers’ compensation claims cost benchmark.” This term will be used in the future as it more accurately describes its role in the workers comp pricing system.
While the Department has no authority to set workers’ compensation rates, the Commissioner did advise workers compensation insurance companies to be cautious if they seek to adjust rates.
“Despite this adjustment to the Claims Cost Benchmark, it is clear that insurance companies remain profitable in California and still have room to reduce the premiums they charge,” Poizner said. “Insurers should work with their employer customers to control the cost of workers’ compensation insurance and help California businesses to remain financially healthy and competitive. While I have no control over workers’ compensation insurance rates, I nevertheless encourage employers to work with their insurance agents and brokers to shop for the best prices.”
“The Commissioner’s decision was reasonable,” said Nicole Mahrt, director of public affairs, western region, for the American Insurance Association. “He balanced the needs of both employers and insurers. Each insurer will now take this recommendation and apply it to their book of business to determine January rates. The good news is that California continues to have a competitive workers’ compensation marketplace. The system remains stable and predictable even as costs are increasing. It important that we continue to protect the reforms that have stabilized California’s once chaotic system.”
Including this adjustment, the Workers’ Compensation Claims Cost Benchmark has fallen 63.4 percent since its high in 2003.
In May 2008, Commissioner Poizner, citing forecasted marketplace stability, did not issue an interim pure premium rate advisory — the first time in six years an interim pure premium rate advisory was not issued by a California insurance commissioner.
In January 2008, Commissioner Poizner recommended no change in workers’ compensation insurance rates based upon his review of the data provided by WCIRB at that time.
In 2007, the commissioner called for a 14.2 percent decrease in workers’ compensation pure premium rates.
Also in 2007, Commissioner Poizner ordered various reforms to reduce rates by improving workplace safety and the accuracy of rate forecasting. To date, WCIRB has:
-Hired external actuaries to review its pure premium rate methodology — it is now utilizing more modern techniques;
-Formed a task force to overhaul its experience rating system, which had gone unmodified for more than 12 years – CDI will hold a workshop, including public comment, in February 2009 to formally review a report on improving the experience rating system.
Commissioner Poizner also convened a blue-ribbon fraud task force, which included effective ways to fight workers’ comp fraud; the report can be found online at http://www.insurance.ca.gov/0300-fraud/upload/FraudTaskReport05-08.pdf.
Sources: AIA, DOI