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Are California workers’ comp benchmark rates stable or even decreasing?

Or does the new methodology suggested by former Insurance Commissioner Poizner and used by current Insurance Commissioner Dave Jones actually mask a significant rate increase?

This is a story that has received lots of attention in the workers’ compensation press, particularly in the Workers Comp Executive (www.wcexec.com).

In a late October edition of the Workers’ Comp Executive, several insurance brokers are quoted as questioning the reported 1.8% decrease in rates and noting that rates in many categories are substantially increased.

The “pure premium” rate set by the Insurance Commissioner (after feedback from the WCIRB) is advisory only.

But the WCExec piece included comments such as that of an Aon Risk Insurance Services executive, Jim Untiedt, who said “If we send a message that the average rates are going down 1.9% (actually 1.8%) rather than climbing 10-30%, businesses will not be prepared for these actual increases.”

In the same WCExec piece another broker, Ron Srajer of Keenan & Associates, was noted to have referenced a 39% increase for hospital filed rates, a 44% increase for residential care and a 45% increase for homemaker service.

According to the WCExec the WCIRB and the California Department of Insurance “declined requests from Workers’ Comp Executive to provide a cross-over comparison between the old and new benchmarks early on in this ratemaking process”.

In a press release issued November 4, Insurance Commissioner Dave Jones issued approval of the advisory rate filing, issuing the following statement:
“Today, I am pleased to announce that the advisory rate filing proposed by the California Department of Insurance has been approved,” said Insurance Commissioner Jones. “The advisory claims cost benchmark has been set at $2.30 per $100 of employer payroll. The advisory pure premium rate measures the cost of workers’ compensation claims and the expenses to adjust those claims over the next policy year for workers’ compensation insurance. It appears that current rate filings from insurers have slightly exceeded their cost estimates. The WCIRB filing provides greater information on current insurance company rates and pricing than previous filings. Insurers are charging employers insurance premiums close to the estimated cost of benefits and adjusting expenses. However, insurers filed much higher manual rates, the rates that could be charged to employers, and are substantially discounting those manual rates. This has helped to keep workers’ compensation insurance prices generally stable despite increasing costs, particularly for medical care.”

The text of the CDI decision and order (which is effective January 1, 2012) can be found here:
http://www.insurance.ca.gov/0400-news/0 … nOrder.pdf

Not to be outdone, however, Workers’ Comp Executive Dale Debber continues to challenge the validity of the CDI on these rate issues.

Debber’s publication issued an e-blast on Friday, charging that “Workers’ Comp Rates Increased 37% by Commissioner Jones”. I’m told that Debber will soon be releasing more data on his number crunching.

But here’s the text of what his e-blast charges:
“Against a backdrop of a horrid economy and small businesses in trouble, California Insurance Commissioner Dave Jones today effectively approved a 37% increase in workers’ comp rates for 2012. The decision means California employers will pay a lot more for workers’ comp next year than they did last year. But Democrat Jones tried using numerical trickery to couch his decision and make it a non-news worthy event.”

According to Debber, “Couched as a flat rate of $2.30 it is just below the Workers’ Compensation Insurance Rating Bureau’s recommendation of a rate decrease of 1.8%. The 1.8% decrease used a calculation based on currently filed rates to recast a 39.9% increase as a decrease. Now, understanding the calculation is open to criticism, it has been further obfuscated into a blended rate for all employers which is essentially meaningless.”

Continuing, Debber states that “Jones, in a written statement said, “Today, I am pleased to announce that the advisory rate filing proposed by the California Department of Insurance has been approved,” said Insurance Commissioner Jones. The advisory claims cost benchmark has been set at $2.30 per $100 of employer payroll.”

Moreover, Debber notes that “This past spring, Workers Compensation Insurance Rating Bureau, a private organization owned and run by insurance companies licensed and doing the work of the Insurance Department, filed and then withdrew a 39.9% increase for 2012. Then, Commissioner Jones ordered that WCIRB stop benchmarking the pure premium rates from the previous approved rate and instead benchmark it against the average pure premium rates that carriers have currently filed. That’s how they arrived at the 1.8% decrease or a $2.33 average rate, which has been approved now as a $2.30 rate.The resultant recommendation from WCIRB – a small decrease – was an enormous swing from what was on the table. WCIRB admitted no change in the underlying methodology, but despite the huge disparity, refused to provide an-apples-to apples comparison to its previous filings. It was stuck between Commissioner Jones and reality, or more proverbially, between a rock and a hard place.”

Continuing, Debber charges that “And neither the WCIRB nor the California Department of Insurance will answer questions concerning the difference. The end result is still largely the same–a huge increase.
You can fool some of the voters some of the time but when in the end they have to write bigger checks the truth becomes apparent. Workers’ Comp Executive will have full coverage of Compline’s analysis of the holes in the Department’s explanation and calculations next week. There promises to be an explanatory tool which producers can use for employers to explain the subterfuge and resultant rate increase.”

How this plays out-in dollars and in public perception- could be very important for California workers’ comp. Already we have seen a reluctance by the Brown Administration to support any benefit increase which is not offset by cost savings. If comp rates are widely seen as increasing at double digit rates, the pressure to find cost savings would really intensify.

Stay tuned.

Julius Young
www.workerscompzone.com
www.boxerlaw.com

Category: Political developments

Julius Young

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