California: Rating bureau says claim costs continue to jump while frequency declines
Researchers from the Workers' Compensation Insurance Rating Bureau said those costs may continue to rise if controversial rulings by the state Workers' Compensation Appeals Board stand.
According to the study, which examined workers' comp insurers' experience through the end of June 2009, the WCIRB estimated that the average cost of a 2008 indemnity claim will be approximately $57,000 when all the costs are settled. Researchers said this represents the third consecutive double-digit severity increase after sharp declines after the enactment of legislative reforms in 2003, 2004 and 2005.
The study noted that the estimated average cost of a 2008 indemnity claim could jump to $64,000 if the WCAB decisions in Almaraz v. Environmental Recovery Services, Guzman v. Milpitas Unified School District, and Ogilvie v. City and County of San Francisco are not tempered. Many insurance analysts believe those decisions may have a significant impact on the amount of future permanent disability awards, which were targeted under the reforms. In its recent filing with California Department of Insurance, the bureau said that the potential cost impact of those decisions were a significant factor its recommendation that insurers increase their pure premium rates by 22.8 percent in the coming year. Due to pressure from the governor and other state officials, the WCAB announced earlier this year that it would reconsider its en banc decisions. Although the board issued its reconsidered opinions in September, the WCIRB said it is still in the process of reviewing the impact of these decisions on costs.
Other highlights from the study included:
- Claim frequency fell by more than 10 percent. The WCIRB estimated that indemnity claim frequency for the first six months of 2009 was 10.4 percent less than the first six months of 2008. Indemnity claim frequency for the first six months of 2009 was estimated at less than 30 percent of its all-time high in 1991.
- Written premium down. California written premium (gross of deductible credits) reported for the first six months of 2009 was an estimated $4.5 billion. Researchers said this is approximately 18 percent below the written premium reported for the first six months of 2008.
- Comp share of payroll similar to 2008. 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 six months of 2009 was $2.33. Researchers said this is comparable to the average rate charged in 2008.
- Calendar year combined ration skyrocketed. The calendar year combined ratio for 2008 was 101 percent, 16 percent higher than the 2007 calendar year combined ratio.
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October 15, 2009
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