WCIRB: 2011 accident year combined ratio may be 'slightly lower'
The estimated statewide combined loss and expense ratio for accident years 2009 and 2010 of 130 percent is the highest since accident year 2001, according to the California Workers' Compensation Insurance Rating Bureau. The anticipated growth in premium for 2011 was insufficient to compensate for increases in claims costs and expenses, leading to an expected 2011 accident year combined ratio that is only slightly lower.
The estimates are included in the WCIRB's annual report. Overall, it says premium levels increased, average costs of claims showed modest growth, and insurer expense ratios continued to remain high for 2011.
Among the overall findings were:
- Rates. While pure premium rates did not change, many insurers filed for manual rate increases. "The industry average filed manual rate as of July 1, 2011 was $3.27. However, insurers continued to significantly discount their filed manual rates," the report says. The industry average charged rate was $2.37, which WCIRB calls a significant discount from the industry average filed manual rate and almost $4 below the industry average charged rate in the second half of 2003. Industry average charged rates remained far below the levels before legislative reforms were adopted in California.
- Premiums. Statewide written premium in 2011 "increased significantly for the second consecutive year." The WCIRB said that was despite the modest movement in industry average charged rates. The bureau estimates the statewide written premium will be approximately $7.7 billion, an increase of $600 million from the previous year, and $11 billion from 2009. Despite the increase, the WCRIB said the estimated premium for 2011 is below the pre-recession levels in 2007 and "almost $9 billion less than the pre-reform high in 2004."
- Frequency. The year 2010 saw indemnity claim frequency increase sharply, ending the decades of declines. However, the WCRIB said the level was unchanged for the first nine months of 2011. The bureau is investigating to see if the 2010 increase "is a single year aberration attributable to recent economic patterns or an indication of a permanent shift in the long-term claim frequency trend."
- Severity. The bureau projects "only a small increase" in average claim costs for 2011 after a moderate growth in 2010. It says the average cost of an accident year 2011 indemnity claim is about $67,000 -- more than 40 percent higher than a 2005 claim but only 2 percent above the average cost of a 2009 indemnity claim. The WCIRB attributes that at least somewhat to an increased frequency of smaller indemnity claims.
- Total benefit costs in 2011 are "expected to again increase modestly," the bureau says. Total incurred benefit costs dropped significantly following the reforms of 2002 through 2004, which led to reductions in claim frequency and severity. They increased in 2006 through 2008 "as sharp growth in claim severities more than offset frequency declines." A recession-related decline in exposure resulted in a decline of total benefits in 2009, then increased in 2010 as frequency increased. Modest increases in exposure and severity are expected to result in modest increases in 2011 total benefit costs.
- Loss adjustment expenses. The "sharp growth" in the volume of medical liens, the impact of recent court decisions, and an increase in injured workers obtaining legal representation has led to an increase in the average cost of allocated loss adjustment expenses per indemnity claim. The allocated LAE per indemnity claim in 2010 for private insurers was almost $11,000, nearly 50 percent above the comparable 2006 amount.
- Profitability. The average return on net worth for the California workers' comp insurance industry of 5.2 percent represented another year in which the industry lagged well below the Fortune Magazine all-industry average of 12.7 percent in 2010. With continued growth in claims costs and LAEs, the bureau does not expect much improvement for 2011.
Read more at the WorkersComp Forum homepage.
April 12, 2012
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