Jones Explains New California Workers’ Comp Calculations at Public Hearing

September 28, 2011

California Insurance Commissioner Dave Jones explained during a public hearing in Sacramento on Tuesday why the Workers Compensation Insurance Rating Bureau is restructuring how the state’s workers’ compensation pure premium rate is calculated, a move that was supported by the Association of California Insurance Companies.

Jones and ACIC are on board with a new process of analyzing rates that insurers have filed and using that as a benchmark to make the pure premium reflect the market rate.

“We’ve kind of trued up the system again,” said Mark Sektnan, president of ACIC, an affiliate of the Property Casualty Insurers Association of America, told the Insurance Journal just after he left the hearing.

Twice a year the WCIRB advises the insurance commissioner on how costs are developing within California’s workers’ comp system and the commissioner then advises insurers whether they should raise, lower or maintain rates.

Sektnan blamed the way rates are presently calculated on former California Insurance Commissioner Steve Poizner.

“Unfortunately, the previous insurance commissioner allowed the pure premium advisory rate process to be politicized and he refused to take action on the increasing cost trends in the system in order to preserve his own political profile while seeking higher office,” Sektnan said. “This inability to make a decision distorted the process and gave businesses and the public misinformation about workers compensation rates.”

He added, “You had a complete disconnect.”

Previously, the WCIRB recommended rates benchmarked to the approved pure premium rates. Jones has directed the WCIRB to instead compare the Jan. 1, 2012 rates against the average insurer-filed pure premium rate.

Under the new method, the average pure premium rates proposed in the filing discussed in Tuesday’s hearing is $2.33 per $100 of payroll, 1.8 percent less than the pure premium rates filed in July 2011.

“Before the workers compensation reforms were enacted in 2003 and 2004, employers were paying $6.29 per $100 of payroll. As of July 2011, employers are paying an average of $2.27 per $100 of payroll,” said Sektnan. “It is vital during this rocky economy that employers get a realistic projection of what their costs will be to protect their employees from work place injuries.”

Next, Jones will ask the WCIRB for additional input, which will likely occur next week. Then between now and Nov. 1, Jones will make a determination for what he believes the pure premium advisory rate should be. Those rates will take effect for Jan. 1, 2012 renewals.

“By truing up the system we’ve now created a credible base number to start from,” Sektnan said, adding that when the rating bureau conducts its next filing and decides on a percentage decrease or increase, it will mean something. “The benchmark will actually have value.”

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