IN A SURPISE move, the Workers’ Compensation Insurance Rating Bureau of California has filed a recommendation to reduce average baseline rates on policies by 7.8% at the mid-year mark.
The mid-year reduction to the baseline rate is largely the result of reforms that were introduced in 2013 that have sped up the settlement process for claims (including many long-term claims), in addition to reducing medical costs.
Also, because of these reforms the cost of adjusting workers’ comp claims in California has dropped over the past few years.
Insurance carriers use the benchmark rate – also known as the pure premium rate – as a starting point for pricing their policies.
The benchmark rate is an average across all industries and employers may or may not see decreases in their workers’ comp premium come renewal as many other factors are at play, not the least of which is the employer’s own safety history.
Region is also important and insurers are pricing policies for Southern California employers higher than for the rest of the state due to the continuing problem of cumulative trauma claims being filed by workers post-termination, mostly in the greater Los Angeles area.
“Cumulative injury claims often involve multiple injuries [that have developed over time], are very frequently litigated, are filed disproportionately in the Los Angeles Basin and often are filed on a post-termination basis,” the Rating Bureau stated in a report on the state of the market as of Dec. 31, 2016.
Indeed, while cumulative trauma claims accounted for just 8% of all claims in 2005, in 2015 they comprised 18% of all claims, according to the Bureau.
The state insurance commissioner sets the benchmark rate with guidance from the Rating Bureau. A hearing will be held in June, after which the commissioner can choose to approve the rate filing, reject it or set another rate that’s either higher or lower than that recommended by the Bureau.
The rate filing is 7.8% less than the approved pure premium rate for policies incepting on or after Jan. 1, 2017. It recommends an average advisory pure premium rate of $2.02 per $100 of payroll. That’s compared with $2.19 per $100 of payroll as of Jan. 1.
The pure premium rate is a reflection of an overall decline in the total cost of claims thanks to SB 869, legislation that was signed into law in 2013.
By addressing numerous cost drivers it has helped reduce medical costs, expedite claims settlements, and reduced the frequency of workers’ compensation claims. The legislation also increased benefits for some injured workers.
As a result, the average projected ultimate cost of a claim increased to $82,234 at the end of 2016, compared to $74,699 in 2013.
Rising average payouts for wage losses and medical costs per claim are both contributing to average claim cost increases, according to Rating Bureau data.