Work Comp

Insurance Commissioner Dave Jones heard from the Workers' Compensation Insurance Rating Bureau that pure premium rates need to go up by 9.6% next year to cover carriers' underlying workers' comp costs, while another prominent source said an 8% increase is a more accurate reflection of the current cost environment in California. Others meanwhile urged the department to keep a close eye on the Bureau's underlying cost estimates so that carriers do not reap the benefit of the recent reforms without sharing the savings with employers.

California Department of Insurance officials closed the record on the 2014 pure premium rate rulemaking file after taking public testimony from the Bureau, actuary Mark Priven representing the public members to the WCIRB governing committee and Mark Gerlach representing the California Applicants' Attorneys Association. Each offered a different take on how pure premium rates should respond to current claims results and the evolving dynamics of the California workers' comp market as the SB 863 reforms take hold.

Priven, an actuary with Bickmore, offered the only alternative estimate for the 2014 pure premium rates and suggested that a 7.96% increase is his "best estimate" of where the advisory rate should be. He notes that his final estimate is very close to the Bureau's but maintains that they arrived at the number in different ways. Priven says his analysis includes about 5% more in savings from the SB 863 reforms than the Bureau, but much of this is wiped away by a higher cost trend. Priven also found no impact from a new physician fee schedule, whereas the Bureau boosted its recommendation an additional 1.8%.

CAAA's Gerlach did not offer an alternative pure premium rate projection, but urged the department to be diligent in its oversight of the Bureau and carriers - especially as the workers' comp community adjusts to the SB 863 reforms.

"Insurance companies have been really bad at rate making and that's an important consideration as we move forward," Gerlach told the commissioner. He maintains that in the aftermath of the SB 899 reforms carriers' rates did not reflect the full savings from the reforms and were posting loss ratios in the low 30% range. "We profoundly failed the employer community in those years by overcharging them by billions of dollars...how are we going to make certain that we don't make the same mistake moving forward."

Commissioner Jones indicated that he plans to issue a decision "shortly," but declined to elaborate on the timeline for that decision.

"My responsibility as Insurance Commissioner is to evaluate the pure premium rate filing filed by the Workers' Compensation Insurance Rating Bureau, determine if it is reasonable, well supported and adequately reflects the costs for the next workers' compensation insurance policy period," Jones noted at the hearing. "The decision that we make is an important one and it's particularly important to insurers who are paying attention because it serves as a measure and a mechanism to avoid the risk of workers' compensation insurer insolvency."

Stay tuned for additional coverage of the numbers surrounding this filing and the continued roll out of the SB 863 reforms.