California Workers' Comp Market

[Rob Comeau]

The following information is based on the actuarial results compiled from the WCIRB and will illustrate market trends and cost effective solutions.

Reasons that factor into the volatility of the California Workers’ Comp Marketplace

FROM 2005 TO 2008 THE FOLLOWING HAS TAKEN PLACE

WRITTEN PREMIUM HAS DECREASED 53%
FROM $15.2 BILLION TO $7.1 BILLION

INCURRED LOSSES HAVE INCREASED 20%
FROM $6.4 BILLION TO $7.7 BILLION

CALIFORNIA LOSS RATIOS HAVE INCREASED 138%
FROM 29.9% TO 71.3%

THE AVERAGE INDEMNITY CLAIM HAS INCREASED 52.1%
FROM $37,329 TO $56,805

FROM 2008 TO 2009 THE FOLLOWING HAS TAKEN PLACE

INCURRED LOSSES IN 2008 WERE HIGHER THAN WRITTEN PREMIUM
$7.7 BILLION IN LOSSES COMPARED WITH $7.1 BILLION

PREVIOUS 5 YEARS ESTIMATED LOSSES HAVE JUMPED IN 2009
OGILVIE AND ALMARAZ/GUZMAN RULINGS ON DISABILITY

HEALTH INSURANCE COSTS CONTINUE TO SKY-ROCKET
DOUBLE DIGIT INCREASES ANNUALLY ON AVERAGE

The Insurance Commissioner who is recommending no increase for July 1st, 2009 is sighting the fact that Self-Insured employers in California have experienced decreasing expenses and that traditional carriers need to make adjustments to follow suit.

"During a conference call to announce his decision, Commissioner Poizner repeatedly noted the experience of large self-insured employers and their success in implementing the reforms and containing costs. He contrasted their efforts to carriers who he accused of relying on a rate increase to cover any increase in cost rather than investing the hard work that is necessary to adequately contain costs." - Workers' Comp Executive News Desk

What I find interesting is the comparison between the self-insured companies and the carriers. These are two very different insurance business models that are not truly comparable. A self-insured company in California has found it to be more cost effective to go self-insured and as a result has put into place loss control metrics for cost containment. Implementing and sustaining these metrics are a rigorous process to establish from a safety culture standpoint and requires constant modification and monitoring to ensure its success.

An insurance carrier does not have the man power to affect these culture shifts within their clientele on the magnitude required and therefore will have to push this back on their customers. The inherent issue with that is a large number of employers out there do not have the loss control sophistication to pull this off nor leverage the cost that it takes to implement this shift in a downward trending economy. My assumption is that if a carrier decides to implement these “loss control metrics” throughout their book, it will be a watered down generic version of loss control at the ground level which will yield minimal results in cost containment.

The pendulum of costs is on an upward swing. The indemnity portion of the claim used to be the more potent cost factor prior to the 2004 reforms whereas the medical portion is now the driving cost. It doesn’t matter if it is the indemnity portion or the medical portion truthfully as the net cost of a loss time claim is higher now than it was when premiums were three times higher.

The company that I work for is a Self-Insured employer in California, though our business model is different than most self-insured employers as we are a professional employer organization. Therefore I know what it takes from a risk management, human resource and claims management standpoint to keep costs down. We partner with our clients to affect a positive change in their culture and bottom line, but it takes a lot of hands on work and training. To expect a standard market insurance carrier to affect the same type of change with their current business models seems unrealistic.

BBSI works with the Broker community to gain market share and has a track record of success in transfering the cost efficiencies of the Self-Insured Employer to standard companies. In addition to the resources that we provide your clientele (HR Consulting, Safety & Risk Management, Aggressive Claims Management & Payroll Processing) we also offer a safety incentive rebate annually which is worth up to 1/3 of an insured’s premium.

For more information, feel free to contact me.

Thank you,

Rob Comeau I Director of Business Development I BBSI
Office: 949.255.5322 I Cell: 949.510.1126 I Fax: 949.255.5332
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