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The Workers’ Compensation Insurance Rating Bureau’s filing to change the way the state’s workers’ compensation pure premium rate is calculated drew praise on Friday from Insurance Commissioner Dave Jones and others.
“Today, I am pleased to announce that the advisory rate filing proposed by the California Department of Insurance has been approved,” Jones said in a statement. “The advisory claims cost benchmark has been set at $2.30 per $100 of employer payroll.”
The sugggested rate hike is lower than the average pure premium rates proposed in September of $2.33 per $100 of payroll, 1.8 percent less than the pure premium rates filed in July 2011.
The pure premium rates to be used by the WCIRB rate will become effective Jan. 1.
The advisory pure premium rate measures the cost of workers’ compensation claims and the expenses to adjust those claims over the next policy year for workers’ compensation insurance.
Jones held a public hearing in Sacramento at the end of September to explain why the WCIRB is restructuring how the state’s workers’ compensation pure premium rate is calculated, a move that has been supported by the Association of California Insurance Companies.
“We applaud the Commissioner’s efforts to lay out an improved, transparent process that is more accurate, timely and more in touch with how the marketplace is operating,” Mark Sektnan, ACIC president, said in a statement on Friday. “We also appreciate the Commissioner’s recognition that system costs are rising, particularly medical costs.
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.
The WCIRB filing provides greater information on current insurance company rates and pricing than previous filings, according to Jones and others who have pushed for the new benchmark. Insurers are charging employers insurance premiums close to the estimated cost of benefits and adjusting expenses.
However, insurers filed much higher manual rates, the rates that could be charged to employers, and are substantially discounting those manual rates. This has helped to keep workers’ compensation insurance prices generally stable despite increasing costs, particularly for medical care, according to Jones.
The filing means “rates are essentially where they need to be to cover the cost of claims, which has been increasing substantially in recent years,” said Jerry Azevedo, a spokesman for the Workers’ Compensation Action Network, a group that represents the interests of employers.
“This is a methodology that we think adds transparency,” Azevedo added. “This is the first rate decision or advisory rate published by the insurance commission under the new methodology established by the bureau and our organization believes the new methodology is good for employers because it adds transparency and it’s clearer and more informative for employers to expect where rates should go heading into the next year.”