California Insurance Commissioner Ricardo Lara has adopted and issued a revised average advisory pure premium rate, lowering the benchmark to $1.45 per $100 of payroll for workers’ compensation insurance, effective Jan. 1, 2021.
This marks the tenth consecutive reduction to the average advisory pure premium rate benchmark since January 2015.
Lara did not order an additional adjustment for COVID-19 at this time, citing the need for additional data and review by the Department of Insurance and the Workers’ Compensation Insurance Rating Bureau.
The WCIRB in September submitted a pure premium rate filing to the California Department of Insurance, proposing advisory pure premium rates that are on average 2.6% above the average approved Jan. 1, 2020, advisory pure premium rates.
Absent the estimated impact of COVID-19 claims on 2021 policies, the filing reflected a modest decrease (1.3%) in advisory pure premium rates. In addition to projecting the cost of COVID-19 claims to be incurred on 2021 policies, the filing also reflects the impact of the pandemic-related economic slowdown on future wage growth, claim frequency and claim severity.
“The WCIRB’s thorough efforts to estimate COVID-19 costs are noted and appreciated but I am not persuaded that there is sufficient and reliable data upon which to base an adjustment for COVID-19 costs,” Lara stated in his order.
Instead, he directed workers’ comp insurers to identify any COVID-19 adjustments in rate filings subsequently submitted to the CDI, and directed the WCIRB to collect data on aggregate premium charged for the COVID-19 adjustment on an ongoing basis.
“With the pandemic continuing to create uncertainty for the near future, we need to continue to review the data along with the impact of both vaccine distribution and additional and necessary public health measures to bend the curve,” Lara continued. “Now is not the time to put an extra burden on front-line employers in health care, agriculture and other industries who are keeping our fragile economy afloat. While insurance companies can set appropriate rates, I urge them to be cautious and driven by the data.”
The indicated average advisory pure premium rate level of $1.45 approved by the Lara is about 19.4 percent lower than the industry-filed average pure premium rate of $1.80 as of July 1, 2020.
Lara’s decision results in an average advisory pure premium rate that is below the $1.56 average rate recommended by the WCIRB in its filing, which includes an add-on of $.06 for projected COVID-19 claims costs. The WCIRB’s recommended average pure premium rate would have been $1.50 without the projected COVID-19 claims costs, which compares to the Commissioner’s just-approved rate of $1.45.
Lara issued the advisory rate after a public hearing on Oct. 5 and careful review of the testimony and evidence submitted by stakeholders. The pure premium rate is only advisory. The WCIRB’s pure premium rate filing demonstrates continued decreases in costs in California’s workers’ comp insurance market. The pure premium advisory rate reduction is based on insurance companies’ cost data through March 31, 2020, excluding COVID-19.
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