Citing “lower medical loss and allocated loss adjustment expense development, continued acceleration in claim settlement, and recent indemnity claim frequency decreases,” the Workers’ Compensation Insurance Rating Bureau (WCIRB) voted to lower what is called the “pure premium rate” by 7.8 percent effective July 1.

The industry-based WCIRB Governing Committee in mid-April voted unanimously to authorize submission of a midyear pure premium rate filing to the California Department of Insurance (CDI).

Moving quickly, the CDI announced that it would hold a public hearing on May 3, 2017 to consider the rate reduction, which will, in all likelihood be approved by Insurance Commissioner was submitted to the CDI on April 11, 2017.

This is the fourth time in the last four years that rates have gone down in California, but it is the first mid-year premium cut and is based on lower costs in the program brought about by a law passed five years ago—Senate Bill 863.

The filing will propose a July 1, 2017 average advisory pure premium rate of $2.02 per $100 of payroll which is 16.5 percent lower than the corresponding industry average filed pure premium rate of $2.42 as of January 1, 2017 and 7.8 percent less than the Insurance Commissioner’s approved average January 1, 2017 advisory pure premium rate of $2.19.

What it means for contractors

“Pure Premium” rates are not a guarantee of what contractors will pay for their insurance—that is dependent on both the competitive environment and – contractors own experience ratio.

The Governing Committee said the decision was based on the WCIRB Actuarial Committee’s analysis of insurer loss and loss adjustment experience as of December 31, 2016, which was reviewed at public meetings of the Actuarial Committee held on March 21, and April 3, 2017.

The Actuarial Committee noted that cumulative trauma claims continue to increase, particularly in the Los Angeles region. In addition, medical severities are beginning to increase after several years of more modest severity trends driven by S. B. 863.

Here’s some of the committee findings:

  • California written premium for 2016 is approximately $18.1 billion, which is 3% above the written premium reported for 2015.
  • The projected industry average charged rate per $100 of payroll for policies incepting between July 1, 2016 and December 31, 2016 is $2.67, which is 6% below the average rate charged for the first six months of 2016 and 12% below the average rate charged for the first six months of 2015.
  • The WCIRB projects a preliminary ultimate accident year combined loss and expense ratio of 94% for 2016. This projection is consistent with the ratios for the prior two accident years, which represent the lowest combined ratios since the 2004 through 2006 period.

“Despite these upward pressures on system costs, the Governing Committee believed that lower frequency and favorable loss and allocated loss adjustment expense development, partially driven by increases in claim settlement rates, warranted a reduction in the industry average pure premium rate as of July 1, 2017,” the agency said in making the announcement.

The WCIRB said it would submit its filing to the Insurance Commissioner in mid-April. The filing and all related documents are available in the Publication and Filings section of the WCIRB website for those of you who enjoy reading insurance documentation.

Christine Baker, director of the Department of Industrial Relations, issued an endorsement of the WCIRB recommendation:

“The 2012 reforms in SB 863 sought to increase benefits and improve care to injured workers while controlling rising costs for employers. Not only did benefits for injured workers increase by 30 percent, but an anticipated rate spike was prevented. Employers have had four consecutive rate reductions, and today’s recommendation will continue that trend.

“Since 2012, DIR has made significant strides in its quest to eliminate medical provider fraud and illegitimate liens, and is continuing its efforts to launch a prescription drug formulary. These reform efforts seek to further improve treatment of injured workers while reducing costs in the system that would have been paid by employers. As evidenced by the WCIRB’s recommendation for a midyear rate reduction, our recent reforms have brought both stability and sustainability to California’s workers’ compensation system.”