WCIRB’s Summary of 1Q Experience Reveals Cont’d Price Increases

The WCIRB’s recently released summary of statewide first quarter 2002 experience shows sharp increases in insurer rates as well as continued deterioration in loss development.

Average insurer rates on policies written in the first quarter of 2002 are 21 percent above the average rates charged on 2001 policies, 44 percent above those charged on 2000 policies, and 78 percent above those charged on 1999 policies. These are the highest average rates charged since 1993.

Despite sharply increasing market rates, loss experience has continued to deteriorate, and the WCIRB now estimates the ultimate combined ratio for accident year 2001 is 134 percent. The combined ratios for the prior three accident years are now estimated at 168 percent for accident year 1998, 175 percent for accident year 1999, and 159 percent for accident year 2000.

The WCIRB has also updated the difference between the estimate of ultimate California workers’ compensation losses prepared by the WCIRB and the ultimate California workers’ comp losses reported by insurers. The WCIRB now estimates that the total cost of benefits on injuries occurring prior to Jan. 1, 2002 exceeds insurer-reported loss amounts by $12.1 billion.

Dave Bellusci, the WCIRB’s chief actuary, notes that “while this estimate may be symptomatic of deficiencies in reserves and suggests that continued adverse loss development can be expected, it should not be taken as a specific estimate of insurer reserve shortfalls. The WCIRB’s estimate does not reflect reinsurance arrangements or future loss reimbursements by employers through large deductible agreements.” Bellusci also notes that “the estimate is well above that of previous evaluations for several reasons. First, each quarter we continue to see sharp increases in paid and incurred losses for most accident years—even those years that are at relatively mature stages. Second, over time, we have modified our loss projection methodologies to be more responsive to the development patterns that have emerged.”

Other highlights of the report include:

Total written premium reported for the first quarter of 2002, prior to the application of any deductible credits or reinsurance transactions, is estimated at $3.8 billion. This is 27 percent above the written premium reported for the first quarter of 2001.

Ultimate accident year losses for 2001 are projected by the WCIRB to be $10.9 billion. This amount is $0.9 billion above the 2000 level and is the highest ever recorded by the WCIRB.

Indemnity claim frequency for 2001 is estimated to be 4 percent lower than that for 2000. Currently, 2001 indemnity claim frequency is estimated at 59 percent of its all-time high in 1991.

The WCIRB projects the average cost of a 2001 indemnity claim will be approximately $41,600, which is 7 percent greater than the average cost of a 2000 indemnity claim and more than double the average cost of a 1994 indemnity claim. This represents an annual growth rate since 1995 of 11 percent, which is well above the level of general or medical inflation.

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