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WCRIB uses new method in calculating work comp rates

In workers' compensation defense news, California Insurance Commissioner Dave Jones recently explained at a public hearing in Sacramento why his office is working with the Workers Compensation Insurance Rating Bureau (WCIRB) to change the calculation of the state's workers' compensation pure premium rate.

Under the current system, WCRIB advises the Insurance Commissioner on workers' compensation pure premium rates twice a year, recommending either increases or decreases. The Insurance Commissioner is then free to either accept or reject these recommendations when advising California's licensed workers' comp companies on rate adjustments.

When offering advice/making its recommendations regarding pure premium rates, WCRIB has long relied on previously approved pure premium rates. However, the new system of calculation calls for WCRIB to consider the average insurer-filed pure premium rate (i.e., the current market rate) when making its recommendations.

(Pure premium rates are figures that reflect the actual or anticipated costs to insurers stemming from indemnity payments and other allocated losses; overhead costs and profits are not included in the calculation)

According to the Insurance Commissioner, the calculation shift will create greater transparency and be more comprehensible to the general public.

The move has gained the support of the Association of California Insurance Companies (ACIC) who viewed the previous system of calculation as being too political.

"Unfortunately, the previous insurance commissioner allowed the pure premium advisory rate process to be politicized and he refused to take action on the increasing cost trends in the system," said Mark Sektnan, president of the ACIC. "This inability to make a decision distorted the process and gave businesses and the public misinformation about workers compensation rates."

Using the new calculation, WCRIB recommended a 1.8 percent decrease to the pure premium rates or $2.33 per $100 of payroll.

Commissioner Jones now has until November 1 to consider what his recommendation regarding pure premium rates will be. (California's licensed workers' comp companies may accept or reject WCIRB's recommendations and establish their own rates. However, they typically use the Insurance Commissioner's recommendations as their primary benchmark.)

Stay tuned for further developments in the area of workers' compensation defense law...

This post was provided for informational purposes only and is not to be construed as legal advice.

Related Resources:

Insurance Journal "Jones explains new California workers' comp calculations at public hearing" Sept. 28, 2011

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