WCIRB’s Mid-Year Summary Reveals Continued Growth; Declining Frequency

October 17, 2002

The Workers’ Compensation Insurance Rating Bureau’s recently released summary of June 30, 2002 statewide experience shows continued premium growth and declining claim frequency. Written premium for the first six months of 2002 of $7.3 billion is 24 percent above the written premium reported for the first six months of 2001.

According to Dave Bellusci, the WCIRB’s Chief Actuary, “with sharply increasing insurer rates as well as the July 1, 2002 advisory pure premium rate increase, we expect premium growth to continue to accelerate. For the full 2002 year, total written premium (prior to application of deductible credits) is likely to exceed $15 billion. Additionally, in light of the cost impact of the recently adopted increases in injured workers’ benefits, total statewide premium (prior to application of deductible credits) could easily exceed $20 billion in a year or so.”

The WCIRB report also shows that indemnity frequency for the first six months of 2002 is down 3.6 percent from 2001 and is approximately one-half its high water mark in 1991. According to Bellusci, “our models are forecasting that frequency will continue to decline for the remainder of 2002. However, with the large benefit increases specified in Assembly Bill 749 beginning in 2003, it is likely that over the next year or so the decade long pattern of declining claim frequency will end.”

Other highlights of the report include:

§ Average final insurer rates are 20 percent above the average rates charged on 2001 policies and 78 percent above the average rates charged on 1999 policies. The average rates charged on 2002 policies were 17 percent above the approved Jan. 1, 2002 pure premium rates (pure premium rates provide for losses and loss adjustment expense only).

§ Ultimate accident year losses for 2001 are currently projected by the WCIRB to be $11.0 billion. This amount is $0.9 billion greater than the losses projected for 2000 and the highest amount ever projected by the WCIRB.

§ The WCIRB projects ultimate accident year loss ratios of 124 percent, 132 percent, 117 percent and 97 percent for the 1998, 1999, 2000 and 2001 accident years, respectively. Even with significant loss ratio improvement in 2001 due to higher insurer rates, the projected accident year 2001 loss ratio is well above that shown for any year prior to 1996.

§ The WCIRB projects that the 2001 accident year combined loss and expense ratio will be 132 percent. While this ratio is significantly lower than the combined ratios projected for the 1996 through 2000 accident years, it is still well above historical norms.

§ The calendar year 2002 loss ratio reported by insurers at June 30, 2002 is 85 percent, which is comparable to the six-month 2001 loss ratio of 84 percent, but 9 percentage points below the six-month calendar period loss ratio reported for 2000.

§ The WCIRB projects the average cost of a 2001 indemnity claim will be approximately $42,000, which is 5 percent greater than the average cost of a 2000 indemnity claim and more than double the average cost of a 1994 indemnity claim. This represents an annual growth rate since 1994 of 11 percent, which is well above the level of general and medical inflation.

§ The WCIRB’s June 30, 2002 estimate of ultimate losses on all injuries that occurred on or before December 31, 2001 exceeds the amount reported by insurers for those injuries by $12.6 billion.

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