WCIRB’s Q3 Report Reveals Price Increases and Adverse Loss Development

The Workers’ Compensation Insurance Rating Bureau’s (WCIRB) summary of statewide third quarter 2002 experience shows sharp increases in rates charged to policyholders, declines in claim frequency, and continued deterioration in loss development.

The WCIRB reports that the average insurer final rates on policies
Written in the third quarter of 2002 were 16 percent above the average rates charged in the first half of the year and 40 percent above those charged on 2001 policies. The statewide average rate charged on policies in the third quarter was approximately $5.00 per $100 of payroll and represents an increase of 11 percent over the Jan. 1, 1993 average rate of approximately $4.50 per $100 of payroll, which had been the highest ever reported for California.

The WCIRB also reports that indemnity claim frequency continues to drop. The reported indemnity claim frequency for the first nine months of 2002 is down almost 9 percent from the first nine months of 2001 and is roughly one half of its 1991 level. Though claim frequency is now at a long-term low, the WCIRB cautions that it is not clear how much longer this pattern of decline will continue, particularly in light of the large benefit increases beginning in 2003 and the well-documented increase in claim frequency that accompanies large benefit changes.

While insurer rates are increasing and claim frequency declining, accident year losses continue to develop adversely. The WCIRB now estimates the ultimate accident year combined ratio for accident year 2001 is 138 percent. The combined ratios for the 1998, 1999 and 2000 accident years are now estimated at 171 percent, 177 percent and 162 percent, respectively. Notwithstanding the continuing deterioration in loss development, the WCIRB anticipates that the accident year 2002 combined ratio will be lower than the 2001 combined ratio due to the continuing decline in claims frequency and the significant increase in the reported average rates.

Other highlights of the report include:

Total written premium for the first nine months of 2002, prior to the application of any deductible credits or reinsurance transactions, is estimated at $11.1 billion. This is 28 percent above the written premium for the first nine months of 2001. The WCIRB estimates that total written premium for 2002 will be approximately $15 billion.

Ultimate accident year losses for 2001 are projected by the WCIRB to be $11.7 billion. This amount is $1.2 billion above the 2000 level and the highest amount ever recorded by the WCIRB.

The WCIRB projects the average cost of a 2001 indemnity claim will be approximately $45,000, which is 8 percent greater than the average cost of a 2000 indemnity claim and more than double the average cost of a 1994 claim.

This represents an annual growth rate since 1994 of 12 percent, which is well above the level of general or medical inflation.

The WCIRB’s estimate of ultimate losses on all injuries that occurred on or before Dec. 31, 2001 exceeds the amount reported by insurers for those injuries by $13.7 billion.

Topics Trends Profit Loss Pricing Trends