Calif. Workers’ Comp Losses, Expenses Reach Over $12B

By | August 21, 2012

A report issued on Tuesday by the California Workers’ Compensation Institute shows workers’ comp insurers’ loss and expense payments rose to nearly $12.5 billion in 2011, an increase of over $1 billion.

The report, compiled from statistics from the Workers’ Compensation Insurance Rating Bureau, shows that insurers’ medical, indemnity and administrative expenses rose to $12.479 billion in 2011. That’s up from roughly $11.2 billion in 2010, according to the report.

The report comes amid efforts to reform the state’s troubled workers’ comp system, and a recommendation from WCIRB to raise premiums 12.6 percent.

The report states direct earned premium was estimated at $10.4 billion in 2001, which is up more than $803 million 2010.

“The latest estimates show California workers’ comp insurers’ aggregate payments rose about $1.3 billion last year compared to a year earlier, as both loss payments and administrative expenses continued to increase,” said Bob Young, a CWCI spokesman.

Total loss payments jumped about $350 million with the increase split pretty evenly between treatment and indemnity payments, insurer overhead was up $266 million, loss adjustment and defense costs were up $651 million, medical cost containment expenditures rose $28 million and med-legal costs rose $5 million, according to Young.

“Ultimately premium always follows losses, which has been evidenced by the recent increases we’ve seen in premium rates and the latest pure premium rate recommendation from the WCIRB,” Young said.

According to the report higher loss adjustment and defense payments accounted for half of the overall increase in insurer payments last year, as these expenditures climbed to nearly $2.6 billion due to a statewide increase in allocated loss adjustment expenses and a substantial strengthening of unallocated loss adjustment expense reserves by one insurer,” the report states.

An estimated $715 million of that $2.6 billion total was paid for defense attorney expenses incurred in 2011, according to the report.

Payments for overhead , which includes general expenses and taxes, agent and broker fees, and other acquisition expenses, rose jumped to nearly $2.4 billion, while general expenses and taxes rose to more than $1 billion last year to remain the largest overhead expense, followed by agent and broker fees, which hit an estimated $857 million spurred by increased premium.

Other acquisition expenses added $510 million, the report states.

Meanwhile the state Legislature is apparently working its way toward a workers’ comp reform bill.

A proposal hammered out between labor and a small group of large, self-insured employers is being eyed for insertion into a senate bill.

While insurers weren’t at the table, and it appears state legislators were left out of the process until late in the game, secretive meetings have been ongoing to draft a bill that will pass muster and be delivered successfully to the desk of Gov. Jerry Brown.

What came from those meetings is a nearly 300-page proposal that aims to fulfill the need for roughly $700 million in additional permanent disability benefits for injured workers, and $1.4 billion in system wide savings.

However, soon after the proposal came out the California Applicants’ Attorneys Association sent out an email to its members earlier this week blasting the proposal, stating that “workers will get less than they do under current law.”

There are evidently several versions of the nearly 300-page proposal. Veteran Sacramento Bee columnist Dan Walters is reporting on a 45-point overhaul plan is circulating in the Capitol. It originated with a labor union group and would increase direct cash benefits to permanently disabled workers, raising the cap from $400 a week to $800, while promising employers medical and operational efficiencies to more than offset the $2 billion per year benefit cost.

The proposal would increase benefits to permanently disabled workers by raising the cap from $400 a week to $800.

WCIRB is also recommending a 12.6 percent increase in premiums, however the bureau has stated that number could be altered once it has time figure in the cost savings promised by the plan.

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