Report: Written Worker’s Comp Premium in California to Fall by $1B in 2019

By | July 31, 2019

Expect workers’ compensation insurance rates in California to continue to fall, with total written premium expected to drop by $1 billion or more for 2019 despite the positive impacts of continued economic growth, a new report shows.

“We’re experiencing more than a $2 billion impact of lower rates,” said David Bellusci, executive vice president and chief actuary of the Workers’ Compensation Insurance Rating Bureau of California.

Bellusci on Wednesday hosted a webinar to give a rundown on the WCIRB’s just-released 2019 State of the System report.

The report summarizes the state of the California workers’ compensation insurance system as of mid-2019.

Written premium is expected to a total of $15.7 billion in 2019, down from $17 billion in 2018.
Source: Workers’ Compensation Insurance Rating Bureau of California

Even with the falling written premium, the report portrays a healthy worker’s comp market in California that’s “very nonconcentrated,” with several hundred insurers participating, according to Bellusci.

Last year was the sixth consecutive year the industry has posted a combined loss and expense ratio below 100. The combined ratio was 90 in 2018. The ratio hit a high in 1999 of nearly 200 percent.

“It’s been probably the most stable period we’ve seen,” Bellusci said.

He expects the combined ratio to begin to go up, somewhat due to a modest rise in severity trends, but it will be largely due to declining rates. Bellusci said the ratio may get pushed into the mid- to higher-90s for 2019.

More than an additional $1 billion in payroll each year is being generated by economic growth. However, lower rates are reducing total written premium by more than $2 billion annually, according to Bellusci.

“The impact of lower rates has more than offset the growth of payroll,” he said.

Written premium is expected to a total of $15.7 billion in 2019, down from $17 billion in 2018. Written premium has been on the decline since 2016 when it was $18.1 billion.

The average charged rate per $100 in California peaked in 2004 at $6.02 before workers’ comp reforms made by SB 899 in 2003 took effect, and they have been on a downward trend since then, the report shows.

Rates are at about $2.04 this year.

“It’s about as low as it’s been way back since the mid-70s,” Bellusci said.

The average charged rate per $100 in California peaked in 2004 at $6.02 before workers’ comp reforms made by SB 899 in 2003 took effect, and they have been on a downward trend since then.
Source: Workers’ Compensation Insurance Rating Bureau of California

Reforms from SB 863 passed in 2012 have saved the workers’ comp system roughly $3 billion annually, with significant savings from lien cost, spinal surgeries and pharmaceutical costs, the report shows.

Later in August the WCIRB is set to make a decision on what to advise the California insurance commissioner to do on the pure premium advisory rates. The pure premium was $1.63 in January, down from $1.94 a year ago.

There have been eight consecutive advisory pure premium rate reductions approved by the commissioner from 2015 through 2019. A ninth reduction is likely.

“There’s probably another decline on the way, but relatively modest,” Bellusci said.

Despite recent rate decreases, California’s workers’ comp rates remain high compared with other states.

Oregon does a state-by-state comparison every other year using Oregon’s industry mix as a control. The report last showed California’s workers’ comp rates at $2.87 per $100 of payroll compared with a nationwide average of $1.70.

Bellusci attributed the state’s poor showing in that report to California’s high frequency of permanent disability claims, the long duration of medical payouts and high frictional costs.

Overall claim frequency in California has remained relatively flat, although the frequency of cumulative trauma claims continues to grow – particularly in the Los Angeles Basin and San Diego areas, the report shows.

The L.A.-Long Beach area had a 32 percent higher frequency than the state average when controlled for industrial mix and wage levels, the report shows.

“That’s a pretty dramatic difference in claim frequencies,” Bellusci said.

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