Risk & Insurance Online

Workers' compensation premiums in California dropped in 2008, according to a recent report. However, despite this good news, researchers from the Workers' Compensation Insurance Rating Bureau of California said the cost per claim increased over the past year.

The report is a compilation of individual insurer reports of accident year and calendar year premium and loss experience. Some of the figures and ratios were based on WCIRB actuarial projections of future claim payments using information reported by insurers through Sept. 30.

According to the report, California written premiums (gross of deductible credits) reported for the first nine months of 2008 were estimated at $8.1 billion. Researchers said this is approximately 18 percent below the written premium reported for the first nine months of 2007. The WCIRB estimated that written premiums for all of 2008 will be approximately $11 billion, which is less than half of the 2004 total.

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Although premiums fell, researchers estimated that the average cost of a 2007 indemnity claim was approximately $46,800. This represents the second consecutive double-digit severity increase after sharp severity declines in 2004 and 2005. Researchers said this accident year 2007 severity, while still below the pre-reform level, is approximately 29 percent above the 2005 estimate. Both indemnity and medical average costs per claim showed significant increases in 2006 and 2007.

Among the highlights of the study, researchers noted:
· Average insurer rate drops. The average statewide insurer rate (final insurer rates reflecting all rating plan adjustments except deductible credits, retrospective rating plan adjustments, and policyholder dividends) per $100 of payroll for policies written in the first nine months of 2008 was $2.30. Researchers said this is 6 percent below the average rate charged in the second six months of 2007, and approximately 64 percent below the average rate charged in the second six months of 2003, prior to the enactment of comprehensive reforms to the state's workers' comp system.
· Accident year losses up, but below pre-reform levels. The WCIRB projected that the total statewide ultimate accident year losses for 2007 were $7 billion. Researchers said that while this is 13 percent above the 2005 level, the 2007 amount remains well below the pre-reform levels.

The WCIRB projected an ultimate accident year loss ratio of 52 percent for accident year 2007. Researchers said this loss ratio, while still low compared to historical norms, represented a 14 percent increase from the estimated accident year 2006 loss ratio and a 23 percent increase from the estimated accident year 2005 loss ratio.
· Claim frequency declines. The WCIRB estimated that indemnity claim frequency for the first nine months of 2008 was 11 percent lower than that for the first nine months of 2007. Indemnity claim frequency for the first nine months of 2008 was estimated at more than 70 percent below its all-time high in 1991.

January 22, 2009

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