California rating agency seeks 12.6 percent increase in pure premium rates

"Workers' compensation underlying costs have continued to deteriorate since our last pure premium rate filing, submitted April 12, 2012." With that, the California Workers' Compensation Insurance Rating Bureau summarized its rate filing for January 2013.

"Significant deterioration in projected losses and loss adjustment expenses" combined with "less optimistic economic forecasts" account for the proposed 12.6 percent increase in advisory rates. The WCIRB submitted the filing to the California Department of Insurance.

The rates are advisory, and insurers are free to use their own rates. They reflect the anticipated cost of indemnity and medical benefits paid to and on behalf of injured workers as well as insurers' costs of administering the benefits relative to insured payroll.

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The proposed rates average $2.68 per $100 of payroll compared to the industry average filed pure premiums rate of $2.38 as of July. The proposed rate represents approximately a 10 percent deterioration in experience from the bureau's July 2012 indication. It cites:

Continued adverse loss development on recent accident years.
Continued higher levels of indemnity claim frequency.
Increases in the forecast rate of indemnity and medical loss cost inflation based on growth in recent loss trends.
Significant increases in allocated loss adjustment expenses.

The losses and loss adjustment expenses have "grown more quickly than the California economy as represented by insured payroll" since legislative reforms were fully implemented in 2005, the filing says. "The estimated indemnity claim cost level is projected to increase by 50 percent from 2005 to 2013; however, the wage level growth in California is projected to be only 25 percent over the same period. This differential has resulted in significant increases in indicated pure premium rates."

The WCIRB says higher frequency rates from 2010 through 2012 are blamed in part on "a sharp increase in cumulative injury claims, growth in the number of late-reported claims and growth in the number of smaller non-cumulative, or specific, injury claims that may have been medical-only claims in the past."

Liens and litigation are cited as factors contributing to continued growth in allocated loss adjustment expense cost per claim. In addition to the higher volume of liens, increases in litigation related to permanent disability claims partly resulting from decisions by the 2009 Workers' Compensation Appeals Board are noted.

While the costs of indemnity and medical benefits have been relatively stable, increased frequency has caused overall claim costs to escalate. The average medical cost per indemnity claim has increased by 48 percent since 2005 due to higher costs for medical treatment, more medical liens filed, pharmaceutical costs, Medicare set-asides, medical cost containment programs, and medical-legal reports.

The filing was submitted as legislative reforms are being considered in the Legislature. The WCIRB will evaluate the cost impact of any legislation approved and submit an amended set of proposed rates, if warranted.

In addition, the filing includes proposed amendments to the California Workers' Compensation Uniform Statistical Reporting Plan - 1995, the Miscellaneous Regulations for the Recording and Reporting of Data - 1995, and the California Workers' Compensation Experience Rating Plan - 1995.

The CDI is expected to schedule a public hearing on the filing.

Read more at the WorkersComp Forum homepage.

September 17, 2012

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