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WCIRB recommends no increase in work comp case rates

In recent workers' compensation defense news, the organization that advises California's Insurance Commissioner on workers' compensation base rates recently made a very interesting recommendation.

Sources indicate that the Workers' Compensation Insurance Rating Bureau (WCIRB) recommended no increase in the workers' compensation rates that insurance companies charge employers across the Golden State.

In a letter to Insurance Commissioner Dave Jones, WCIRB advised against any hike in workers' compensation base rates, and actually recommended a pure premium rate of $2.38 for every $100 of payroll, which is well below the current average pure premium of $2.49 per $100 of payroll.

(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)

Here, WCIRB's Governing Committee reasoned that while Senate Bill 863 -- the work comp reform measure passed this past summer -- will certainly generate some level of cost savings, it's still too early to determine just how much.

Under the current system, WCIRB advises the Insurance Commissioner on workers' compensation pure premium rates several times 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.

In addition, California's 400 licensed workers' comp companies may also accept or reject WCIRB's recommendations and establish their own rates. (They typically use the Insurance Commissioner's recommendations as their primary benchmark.)

Insurance Commissioner Jones ultimately discounted the recommendations of WCIRB and instead advised work comp insurers to consider raising workers' compensation base rates by 2.8 percent. Specifically, he recommended a pure premium rate increase of $2.56 for every $100 of payroll, a slight jump from the current average pure premium of $2.49 per $100 of payroll.

"Today, companies are paying out 116 percent more in claims than they are collecting in premium. It's a recipe for history to repeat itself with a significant number of insurers becoming insolvent not that long ago," he said. "The actuarial science is clear on this matter, and while I don't have the authority to set the rates, I will advise insurers to use pure premium rates that are sufficient."

Interestingly, he also indicated that while his office determined that SB 863 will result in roughly $1.5 billion in savings, it could not find sufficient actuarial support to include an additional $1.6 billion in savings.

The proposed percent increase would affect all new and renewed policies starting in 2013.

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

Sources:

Sacramento Business Journal, "Insurance commissioner recommends small workers' comp rate hike," Kelly Johnson, Dec. 3, 2102

California Department of Insurance, "Insurance Commissioner Issues Decision Recommending Workers' Comp Pure Premium Advisory Rate," Nov. 30, 2012

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