California Workers' Compensation Rate Increases

The article below is re-blogged from the Workers? Comp Executive

Wednesday May 30, 2012

FLASH REPORT!

Jones Approves 45% Workers? Comp Hike for 7/1s

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California Insurance Commissioner Dave Jones went against a unified front of labor and employer representatives siding with the insurance industry and the Workers? Compensation Insurance Rating Bureau (WCIRB) in approving a 8.3% increase mid-year rate hike for California employers. Added to the 37% rate increase he approved for January, July and later renewals are facing an average rate increase of 45.3% over last year at the same time.

?Crud. This means we lose all our clients and pick up everyone else?s,? one Orange County broker told Workers? Comp Executive this morning.

The decision covers policies incepting on or after July 1, and gives insurance companies represented by the WCIRB all that they were asking for in its filing minus two cents. The minor adjustment is being attributed to the State Compensation Insurance Fund?s loss adjustment expenses (LAE), which are typically higher than other carriers? LAE, and hence skew the overall data.

The decision follows a 37% rate increase that Jones approved for January. The Commissioner and certain industry forces gloss over the magnitude of the increases by explaining how the ?benchmarks? or rates for pure premium rates are described. The phraseology changes were made at the commissioner?s request. The Commissioner and carriers express the changes to rates in ?average rates per $100 of payroll? but do not compare new rates to the old and therefore omit the true relative increase to employers.

The pure premium rates are advisory and insurers are free to file their own rates. Many follow the advisory, however.

Citing testimony received as part of the rate hearing process, Jones concluded that an increase is necessary as workers? comp costs continue to increase.

?The primary increase in California?s workers? compensation costs is with medical costs,? Jones says in his decision. ?Per unit medical costs do not appear to be increasing much, but medical utilization appears to be the main driver of overall cost increases.?

That?s particularly troubling in light of the increasing amount insurers spend on services to control medical costs.

?If cost containment tools are not working and costing more than they benefit, we need to know why. I expect the WCIRB to provide further information in the next claims cost benchmark filing that will assist in this analysis as it obtains and evaluates medical cost containment expense data,? Jones said.

Jones also reiterated an earlier call for a balanced approach to workers? comp reforms. He maintains that any benefit increases for injured workers need to be offset with systemic savings in the form of lower frictional costs and a reduction of medical cost drivers in the system.

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(Original Content filed by WCE Staff in San Francisco, Sacramento, and Bangkok)

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