The California Department of Insurance will be holding a hearing today in San Francisco on the WCIRB mid year filing requesting a hike in the advisory workers’ comp rate.
THe insurance market is not required to follow WCIRB recommendations or the rate finding of CDI. Rates continue to be far, far below the levels that were reached in before the 2003/2004 reforms.
Still, with the economy in a slow-mo recovery phase, Insurance Commissioner Jones is likely to look carefully at the request for any hike in the advisory rate. Prior Insurance Commissioner Poizner repeatedly swatted down requests for hikes in the “pure premium” rate.
What do the applicant attorneys think about the request?
Here is a statement addressed to Chris Citko of CDI from Brad Chalk, CAAA President (prepared with the help of Mark Gerlach, an insurance expert who consults for CAAA):
“Dear Mr. Citko,
The California Applicants’ Attorneys Association recommends disapproval of the pure premium rate filing submitted by the Workers’ Compensation Insurance Rating Bureau on April 12, 2012. The filing not only ignores the decision made by the Bureau’s Governing Committee just 6 months ago to refrain from filing mid-year rate changes absent “extraordinary circumstances,” but it also fails to comply with the directive from Commissioner Jones to include disaggregated medical cost containment data.
With regard to the justification for a mid-year filing, we see no conditions that could be considered “extraordinary circumstances.” Nor does the filing identify any “extraordinary circumstances” that would justify this proposal. The Executive Summary of the filing does state that the “system’s underlying costs have continued to deteriorate,” but that hardly qualifies as an “extraordinary circumstance.” And in any case, several charts in the Executive Summary show just the opposite – that cost pressures are abating.
For example, Chart 1 displays the estimated ultimate indemnity + medical + ALAE cost per claim over the period 2005 through 2013. This graph shows increases between 2005 and 2009, but little or no change from 2009 through 2011 (2012 and 2013 are disregarded as these figures are only projections based on the WCIRB’s inaccurate trend estimates). Charts displaying medical costs per indemnity claim, Chart 8, and indemnity costs per indemnity claim, Chart 9, show the same pattern – increases between 2005 and 2009, then leveling off between 2009 to 2011.
The projected ultimate on-level severity trends for both medical and indemnity benefits also follow this pattern (pages A:B-25 and A:B-26). The projected on-level severity for both medical and indemnity increased between 2005 and 2009, decreased in 2010, and then increased a minuscule 0.3% in 2011. In view of the sharp decrease in the on-level severity trend over the past two years, we recommend that the selected severity trends of 3% for indemnity and 7% for medical be rejected. These selected trends are not based on any actuarial computation, but were arbitrarily selected without any statistical justification. Reducing these trend factors to reflect the current experience will eliminate most or all of the indicated change in the pure premium advisory rates..
With regard to cost containment data, Commissioner Jones’ Decision and Order for the January 1, 2012 Pure Premium Rates included the following directive to the WCIRB – “With this order I am directing the WCIRB to include disaggregated medical cost containment expenses of insurers and an analysis of that data in its next filing.”
The WCIRB may contend that this directive was intended to apply to the next “annual” filing, and not to a mid-year filing. That argument misses the point. As explained by Commissioner Jones, reviewing this cost containment data is one part of analyzing the efficiency of insurers. Calendar year data from the WCIRB and limited transactional data from the CWCI both show that cost containment expenses are the fastest growing “medical” cost. In order to accurately identify the real cost drivers in the system, it is important that the WCIRB comply with the Commissioner’s directive.
In analyzing the efficiency of insurers, it is also important to look at the sharp growth in allocated loss adjustment expenses. Chart 10 shows that the average allocated loss adjustment expense per indemnity claim has nearly doubled since 2005. As we said in our comments regarding the January 1, 2012 Pure Premium Rate filing, the causes of this increase may be beyond the scope of this pure premium rate hearing. However, loss adjustment expenses have become a major cost driver in the system, and we recommend that the Commissioner direct the WCIRB to provide more detailed data on these expenses, as well as an analysis of that data, in its next filing.
Thank you for the opportunity to comment on this rate proposal.
S. Bradley Chalk, President
California Applicants’ Attorneys Association”
The hearing will be held at the CDI at 45 Fremont Street, 22nd Floor, starting at 1 p.m. today.
Category: Political developments