California: State Fund files an 8.9% workers' comp premium increase for 2009
California's State Compensation Insurance Fund -- a nonprofit, public enterprise fund that operates like a mutual insurance carrier -- recently filed a revision to its rating plan, which it anticipates will result in an average 8.9 percent increase in collectible premiums beginning Jan. 1, 2009. The filing ignored Insurance Commissioner Steve Poizner's request in late October for a smaller increase. Poizner rejected the Workers' Compensation Insurance Rating Bureau call in August for a 16 percent increase but recommended a 5 percent increase to reflect higher medical and claims adjustment costs to the system. Despite the fact that Poizner and the California Department of Insurance can't legally set workers' comp, most insurance companies base their rates on their advisory filings.
The filing marked the first time the State Fund had requested an increase since the implementation of comprehensive reforms to California's workers' comp system in 2003. Jan Frank, CEO and president of the State Fund, said the principal driver of the rate increase is medical inflation. Over the past two years, workers' comp medical costs have been rising at a rate of about 12 percent per year, according to the most recent report published by the WCIRB.
"This inflation did not affect rates while claims frequency was falling at double-digit rates, but it appears that frequency declines have dropped off to about 2 percent per year," Frank said. "These are uncertain times for the economy, which makes rate setting challenging. We felt it was important to take a conservative approach to pricing. While rate increases are difficult, it is important to remember that State Fund premium levels have fallen significantly since 2003, and even after this increase, will still be 52 percent below pre-reform levels."
According to the State Fund, which has approximately 200,000 policyholders ranging from small businesses to large group associations, premiums for individual employers will also vary based on the experience of their particular rating class and experience modification, so individual employers will inevitably see more or less than the average change. State Fund's rate filing will apply to new and renewed workers' compensation policies with an effective date on or after Jan. 1, 2009.
say laws will help fund chart new course.
Officials also addressed two governance laws for the State Fund -- A.B. 1874 and S. 1145 -- that were signed into law by Gov. Arnold Schwarzenegger in late September. Frank said the State Fund worked collaboratively with the California Legislature to secure passage of the bills as part of the organization's comprehensive plan to increase transparency and strengthen corporate governance.
Specifically, the laws will:
--Expand the State Fund's board of directors from five to 11 voting members. Frank said this will enable the creation of key subcommittees, mandate board training, and require board members to sign financial conflict of interest agreements.
--Provide compensation to board members. Frank said this will ensure that the organization can attract and retain quality candidates.
--Establish six exempt management positions. Frank said this will allow the State Fund to recruit top executives to fill key management positions -- such as chief financial officer and general counsel -- to manage the organization.
--Subject the State Fund to the Bagley-Keene Act. Officials said this will require board meetings be open to the public.
--Give the public access to the State Fund's business records. This is pursuant to the California Public Records Act, officials said.
While the laws provide greater access to the State Fund, officials said they also provide important safeguards to protect the organization's competitive role in the marketplace. Frank said California depends on a financially sound State Fund that maintains an open-door policy of writing all business across all classifications and sizes.
In 2007, officials said the State Fund's board took action to set the organization on a new course. Frank joined the organization as its new president later that year and has enacted further changes to lay a solid foundation for the State Fund's future. Since that time, Frank said the organization has made tremendous progress in the areas of corporate governance, strengthening operational efficiency, and enhancing customer service.
December 1, 2008
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