California: Bureau plans informal filing to explain loss experience deterioration
Nevertheless, the WCIRB won't submit a midyear pure premium rate filing. Instead, members decided to issue an analysis of the latest data indicating pure premium rate inadequacy.
WCIRB's actuarial committee had suggested a pure premium increase of nearly 40 percent. But the Governing Board decided such a huge increase would detract attention from the underlying problems in the system.
"Advisory pure premium rates have not been adjusted since 2009," said Jack Hannan, spokesman for WCIRB. "So each time we go back and do an analysis of the data it compounds the prior period, plus more deterioration."
The WCIRB's proposed 27.7 percent increase in pure premium rates in January was rejected by former Insurance Commissioner Steve Poizner. The WCIRB reported a 12 percent point increase in the projected loss ratio since then based on the following factors:
- Approximately plus 4 points due to loss development on accident year 2009 and prior.
- Approximately plus 3 points due to updated wage forecast from the University of California Los Angeles Anderson School of Business.
- Approximately plus 4 points due to accident year 2010 cost level.
- Approximately minus 2 points due to reduced indemnity severity trend assumption.
- Approximately plus 3 points due to increased allocated loss adjustment expense.
In the meantime, California workers' comp insurers have continued to set their own rates. That's led to what Hannan calls a disconnect between what's actually being filed and used by insurance companies and the pure premium rate process.
"No one is saying rates should go up 40 percent," Hannan said. "We're working with the Department of Insurance to compare pure premium rates to actual insurer filed pure premium rates that are being used in the marketplace to give a context to the 40 percent number."
The informal submission, expected to be release by May, will provide details of potential cost drivers in the system.
"You've got claim frequency starting to increase in California," Hannan said. "It's not clear if it's a one-time change aberration, or is this a turning point? We don't know that yet. We're continuing to look at the data."
Meanwhile, severity, which had been increasing, was relatively flat. "Again, is this an aberration or is it really starting to trend down or flatten?" he asked.
Another big driver has been a slowing of claims settlement rates. WCIRB reports there's been a 1 percent decline since 2005.
"When claims stay open longer, you end up paying more dollars on them," Hannan said. "We're still trying to quantify some of the reasons, but some have been identified as causing a slowdown in settlement rates."
Medical liens are keeping claims open longer, as are some Medicare set-asides, Hannan said.
Recent court decisions, including Ogilvie and Almaraz/Guzman have complicated claims, making them more difficult to close. California's economy is also contributing to the slower settlements because it's more difficult to return injured employees to work.
"Those are placing upward pressure on costs, including frequency," Hannan said. "Those are the cost drivers. This is what we're seeing."
Read more at the WorkersComp Forum homepage.
April 18, 2011
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