California Insurers Group: Jones Was Correct on WC Pure Premium

November 26, 2013

California Insurance Commissioner Dave Jones was correct to recognize the increasing costs in the state’s workers compensation system when he made his pure premium advisory rate recommendation on Friday, says the Association of California Insurance Companies.

Jones’ recommendation was for $2.70 per $100 of employer payroll for workers’ comp policies renewing on Jan. 1, 2014. It was lower than what had been proposed by the Workers’ Compensation Insurance Rating Bureau.

“Commissioner Jones made the right move when he recognized the ongoing cost increases in the state’s workers compensation system,” said Mark Sektnan, ACIC president said in a statement. “The commissioner is taking a responsible position and being mindful of the importance of managing solvency and the ability to cover costs.”

According to ACIC, the state’s workers comp system is still in flux as benefit increases are being implemented and the changes of workers’ comp reform law Senate Bill 863 are rolled out.

“Some initial data on the reforms is available and there is both good and disconcerting news,” Sektnan said. “Basically, it is a waiting game to find out if the cost savings will occur or if unexpected developments will curb projected savings from being realized.”

Jones’ recommendation is advisory. Insurers will take this recommendation and apply it to their book of business and determine their rates necessary to cover costs and to compete. Insurers on average had a combined ratio of 120 percent in 2012, according to ACIC.

“The benefit increases are hitting the system, while realization of the projected savings from SB 863 remains in question,” Sektnan said. “It is very common after a major reform effort for the system to remain in flux. Indemnity costs are increasing as expected, while medical costs continue to increase. The high costs of opioid use continues to drive costs. Now we are also seeing litigation challenging the lien filing fees that were expected to reduce costs.”

He also cited a new Independent Medical Review process that is being implemented. While the new system is expected to result in savings, an unexpected spike in IMR requests is raising flags.

ACIC is part of the Property Casualty Insurers Association of America. California members write 44 percent of personal auto insurance, 29 percent of homeowners insurance, 33 percent of commercial lines business insurance and 40 percent of private workers comp insurance sold in California.

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