California: Commissioner says comp bureau changes will make market more efficient

California Insurance Commissioner Steve Poizner said a recent review of the state's Workers' Compensation Insurance Rating Bureau indicated that several reforms are necessary to make improve efficiency in the market.

"An accurate and credible rate application by the WCIRB is vital to a functioning workers' compensation system in California," Poizner said. "This audit shows that there are many shortcomings that make this task difficult."

This is the fourth top-down review ordered by Poizner. In addition to examining the Department of Insurance, he recently oversaw an operational review of the State Compensation Insurance Fund which made recommendations to improve governance and operations at the California's workers' comp insurer of last resort. A review of the California Insurance Guarantee Association is expected to be released in the coming weeks.

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On the heels of the WCIRB's nearly 24 percent recommended increase in pure premium rates, Poizner said the state must carefully scrutinize all the data involved in making the bureau's decisions to ensure that any change in the benchmark is warranted.

"Every additional dollar spent on workers' compensation insurance is a dollar that an employer cannot use to save or create a job," he said. "In this economy, when many small businesses are barely staying afloat, an unnecessary rate hike can mean the difference between survival and going out of business. WCIRB must take swift action to correct these issues."

Among the recommendations included in the audit, officials urged the bureau to:

Collect detailed, transaction-level data needed to perform refined analyses of the potential impact of legislative, regulatory and judicial actions and of why specific components of claim costs are rising or falling.
Require all insurers to submit their aggregate financial data call reports electronically and require insurers to resolve all data validation errors prior to submitting the information to the WCIRB.
Implement a program applicable to the largest insurers whereby the senior management and the controllers of the insurers attest to the effectiveness of the insurers' statistical and financial reporting systems.
Consider multiple projection methods when making pure premium rate determinations.
Provide a range of reasonable pure premium rate level indications to the state's actuarial and governing committee.

Poizner said the bureau has committed to providing a detailed action plan to fix the faults.

July 9, 2009

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