WCIRB Recommends a 22.8% Increase in Pure Premium Rates
 Sept. 4, 2009

The Workers’ Compensation Insurance Rating Bureau (WCIRB) has recommended a 22.8% increase in pure premium workers’ compensation rates effective January 1, 2010.  Their recommendation was based on two principal components, the first being an evaluation of workers’ compensation loss experience in California valued as of March 31, 2009.  Their analysis revealed an increase in the claims cost benchmark of 16%.  This increase appears to be the result of increased medical costs in the workers’ compensation system.  The second set of motivators for recommending a pure premium rate increase are the anticipated increase costs in permanent disability associated with three workers compensation appeals board decisions (Ogilvie v. City and County of San Francisco, Almaraz v. Environmental Recovery Services and Guzman v. Milpitas Unified School District) that will affect current and future workers’ compensation claims and comprise the balance of the 22.8%.

This recommendation was made to the insurance commissioner for approval.  Again, this is the pure premium rate which reflects the loss and loss adjustment components of workers compensation premium rates.  The other component of workers’
compensation rates is the insurance company expense. But, losses tend to make up the largest component of that rate so a 22.8% increase in the pure premium rate would produce base workers’ compensation rate increases in the neighborhood of 16 to 20% depending on the insurance company and their expense ratios.  

Almost immediately following the WCIRB’s proposal, insurance Commissioner Steve Poizner released a statement regarding their workers’ compensation claims cost benchmark (pure premium rate) rate increaserecommendation. In his statement the Commissioner reminded the public that he rejected the WCIRB's request to increase the claims cost benchmark for July 1, 2009 based on what he felt were inefficient practices by insurance companies in applying available claims cost control tools. He believes as a result insurance companies are not adequately controlling medical costs within the workers’ compensation system.

The Commissioner is very aware of the devastating impact that increases in workers’ compensation insurance premiums would have on small businesses.  We can expect that he will closely scrutinize the WCIRB's recommendation for January 1, 2010.

Insurance companies must file for any rating plan changes within 30 days of the effective date those rates will be used.  Despite the fact that the insurance
commissioner did not approve the WCIRB's pure premium rate increase recommendation for July of 2009, many insurance companies still filed for workers’ compensation rate increases.  The pure premium component of these rate increases was significantly below the WCIRB’s recommendation, but it was the second rate increase in a six month period.  

Although the WCIRB and the insurance commissioner remind us that the current pure premium rate/claims costbenchmark is significantly below the level of 2003. What happened six or seven years ago is no consolation when California employers are experiencing rate increases on an annual basis of 15 to 25% in a challenging economy.

As further developments on this topic occur, CMTA will analyze them and advise you of the impact on California's manufacturers.

Archive