California businesses and their advocates are undoubtedly pleased to hear that workers’ comp costs are likely to decline.
That’s the take away from news that the WCIRB (Workers’ Compensation Insurance Rating Bureau) Governing Committee announced intentions to do a mid-year rate filing requesting that the “pure premium” rate be lowered.
The actual rate filing has not yet been lodged with Insurance Commissioner Dave Jones but will be filed within the next several days. As with all WCIRB filings, the document will have a wealth of information about current costs and trends (so-called severity and frequency). Dave Jones will undoubtedly approve the rate decrease of 10.2%.
But in any event the WCIRB recommendations and approval of the insurance commissioner are by no means binding on carriers. Insurers are free to price their insurance above or below the pure premium rate. Actual pricing depends on various discounts, experience ratings and other factors.
If insurers follow suit to the WCIRB recommendations, employers may be on the verge of enjoying a significant reduction in comp costs.
This will be a source of high-fives among the coalition that pushed the SB 863 reforms.
Medical costs and indemnity are apparently coming in lower than projected.
As applicant attorneys have warned, there are many roadblocks to getting medical treatment approved. And applicant attorneys questioned whether the SB 863 changes touted as a “benefit increase” would really translate into higher permanent disability benefits.
My belief is that applicant attorneys need to understand that the cost of workers’ comp to employers is important. In the early years after the millennium comp costs were spiking (for a number of reasons) and applicant attorneys should acknowledge that those years were not the “good old days”. Some attorneys were probably in denial about the problem.
High comp costs ultimately don’t benefit workers.
But the very fact that we are looking at such a large cost decrease in 2015, while happy news for many employers, may confirm concerns that workers really got the short end of the stick in the SB 863 reforms.
Benefit adequacy and access to appropriate treatment remain large concerns. One only need to look to examples from the recent ProPublica/NPR to see that the pendulum may have swung too far.
Here is what we now know about the upcoming rate filing based on the WCIRB’s press release ( in italics below):
“Citing lower medical loss development, as well as indemnity and medical severities that continue to emerge below expectations, the insurer and public members of the WCIRB Governing Committee voted today to authorize the WCIRB to submit a mid-year pure premium rate filing to the California Department of Insurance (CDI). The filing will propose a July 1, 2015 advisory pure premium rate of $2.46 per $100 of payroll which is 5.0% lower than the corresponding industry average filed pure premium rate of $2.59 as of January 1, 2015 and 10.2% less than the approved average January 1, 2015 advisory pure premium rate of $2.74.
The Governing Committee’s decision was based on the WCIRB Actuarial Committee’s analysis of insurer loss and loss adjustment experience as of December 31, 2014, which was reviewed at public meetings of the Actuarial Committee held on March 18, 2015 and March 30, 2015.
While loss adjustment expenses continue to emerge at levels higher than expected, those higher costs are more than offset by better than projected loss experience. The primary drivers of the indicated reduction in advisory pure premium rates are:
- Significant improvement in medical loss development since the WCIRB’s amended January 1, 2015 Pure Premium Rate Filing, which decreases the estimates of ultimate historical accident year loss ratios and the resultant future year medical cost projections.
- Continued decline in the average cost of indemnity and medical on indemnity claims—particularly in the 2014 accident year. For the second consecutive year following the implementation of SB 863, medical severities declined by more than 4%.
- Significant improvement in accident year 2014 experience, in large part driven by lower than expected severity growth.”
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