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

By | March 18, 2009

The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) says it plans to submit a filing to the California Department of Insurance (CDI) recommending a 24.4 percent increase in pure premium rates that would be effective July 1, 2009, for new and renewal policies.

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

The additional 5.8 percent of the total 24.4 percent is an estimate of the impact of recent Workers’ Compensation Appeals Board decisions (Ogilvie v. City and County of San Francisco, 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 explained. And that 5.8 percent recommendation is a fairly modest estimate of cost impact, he added. “I think everyone thought that would be the minimum impact those cases may have on permanent disability costs on California.”

Hannan explained that the 5.8 percent increase for the cost impact of the WCAB decisions is not the result of a “detailed, exhaustive, full blown analysis by the WCRIB.” That analysis has yet to materialize because there is just no data available, he added.

“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’ compensation 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, adding this is just the 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 the California insurance commissioner, 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, the WCIRB noted in an announcement.

The WCIRB expects to submit its pure premium rate filing to the California Department of Insurance on or around March 27, 2009. Once the filing is submitted, it may be viewed or downloaded from the Regulatory Filings section of the WCIRB Web site at: www.wcirbonline.org.

Following the WCIRB’s announcement, Insurance Commissioner Steve 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. In January alone, nearly 80,000 jobs in the state were lost,” 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 carefully the WCIRB’s recommendation, adding that he has concerns about the quality of data provided by the WCIRB. He said the department 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,” he said. “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 says he plans to convene a hearing of all those in the workers’ compensation system – doctors, insurance companies, applicant attorneys, labor, etc. – to determine why workers’ compensation 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.

After WCIRB recommends a rate to the Department of Insurance, the Insurance Commissioner holds a hearing to solicit feedback about the proposed change.

The April 28 hearing is scheduled to be held in San Francisco. After the hearing, the Commissioner can accept or revise WCIRB’s recommended change.

About Andrea Wells

Andrea Wells is a veteran insurance editor and Editor-in-Chief of Insurance Journal Magazine. More from Andrea Wells

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