Calif. Rating Bureau Recommends 24.4% Workers’ Comp Rate Increase

The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) has recommended to the California Department of Insurance (DOI) to implement a 24.4 percent increase in pure premium rates that would take effect July 1, 2009, for new and renewal policies.

The recommendation is based on two principal components. WCIRB said 17.6 percent of the 24.4 percent rate increase is due to worsening loss development in the workers’ comp insurance line, primarily due to high medical costs. “It’s just rising medical costs,” says Jack Hannan, WCIRB marketing and communications.

The additional 5.8 percent is an estimate of the impact of recent Workers’ Compensation Appeals Board decisions in Ogilvie v. City and County of San Francisco, and Almaraz v. Environmental Recovery Services and Guzman v. Milpitas Unified School District.

“The [WCIRB] actuarial and the governing committees felt that there was a wide possible range of cost impact as a result of those cases,” Hannan said, adding that the 5.8 percent recommendation is a modest estimate of cost impact. “Everyone thought that would be the minimum impact those cases may have on permanent disability costs on California.”

Hannan explained that the increase for the cost impact of the WCAB decisions is not the result of a “detailed, exhaustive, full blown analysis.” That analysis has yet to materialize because there is just no data available, he said.

“I don’t even know that there’s been any cases – or any claims – that have been settled since those cases were decided.” But Hannan cautioned that there’s a general feeling that the outcome from the WCAB decisions will be a significant cost driver on workers’ comp costs in the future.

“We knew that the number [cost impact] wasn’t going to be zero. We’re not sure how big it’s going to be,” Hannan said of WCIRB’s first attempt to estimate the impact. “There’s a general agreement that this 5.8 percent maybe on the very low-end of the range and the cost impact may actually be quite a bit higher.”

If the full 24.4 percent increase is approved by California Insurance Commissioner Steve Poizner, the July 1, 2009, pure premium rates will still be, on average, 54 percent lower than the approved pure premium rates in effect July 1, 2003, WCIRB noted.

WCIRB’s filing, which was submitted to DOI, may be viewed at www.wcirbonline.org.

Following the WCIRB’s announcement, Commissioner Poizner promised to convene a hearing to investigate why medical costs are skyrocketing in the workers’ compensation system.

“California’s unemployment rate is skyrocketing and more than 1 in 10 are jobless,” Poizner said in a statement. “The last thing that California’s employers need is increasing workers’ compensation costs when so many of them are struggling to keep the employees they have.”

Poizner said he will review WCIRB’s recommendation, adding that he has concerns about the quality of data provided. He said the DOI is in the process of completing a top down review of the WCIRB’s operations, which is expected to be complete in June. “Over the past two years, I have carefully scrutinized WCIRB’s proposed rate increases and rejected or reduced every single unwarranted increase in the benchmark. I will give this WCIRB recommendation the same level of careful scrutiny I have given previous requests. I will not allow California’s job creators to be burdened with unnecessarily high workers’ compensation costs.”

Poizner said he plans to convene a hearing of all those in the workers’ comp system – doctors, insurance companies, applicant attorneys, labor, etc. – to determine why workers’ comp medical costs are increasing. “These soaring costs are unsustainable and must be controlled if we are to prevent a repeat of the workers’ compensation crisis we saw earlier this decade,” he said.

Poizner is holding a hearing to solicit feedback about the WCIRB proposal on April 28 in San Francisco. After the hearing, the Commissioner can accept or revise the recommended change.

Topics California Trends Workers' Compensation Pricing Trends