California’s Workers’ Compensation Insurance Rating Bureau governing board has decided not to make a mid-year pure premium rate filing suggesting a 40 percent increase. Instead, the WCIRB will make an informational filing to provide data on the workers’ compensation system that insurance carriers can use as they evaluate their own rates.
On April 1, WCIRB’s actuarial committee announced that its analysis of workers’ comp insurer experience valued as of Dec. 31, 2010, showed there is significant pure premium rate inadequacy. Pure premium rates have not been adjusted since Jan. 1, 2009, the committee said, resulting in rate inadequacy of 39.8 percent.
“Last year’s pure premium rate filing indicated there was 27.7 percent rate inadequacy, and we’ve seen that deteriorate 10 to 12 points,” said Jack Hannan, WCIRB spokesman.
However, there was much discussion at the governing board meeting about how an approximately 40 percent pure premium rate recommendation would be received, because WCIRB’s pure premium rate filings are sometimes misinterpreted as market rates charged by insurance carriers.
“We’re talking about loss factors that haven’t been adjusted in a number of years, which is very different from insurers’ market rates,” Hannan said. But he noted there was concern at the governing board meeting that sometimes that message gets dropped and employers fear their rates will increase by the amount suggested in the Bureau’s filed rate indication.
[People may not always realize that] “in our open rating environment, insurers can price products any way they see fit. I don’t think any insurance carrier takes our information in its entirety. They take what the Bureau says and reflect on that in their own ways in arriving at their own rate filings with the Department of Insurance,” he said.
To eliminate market confusion, WCIRB’s governing board decided to make an informational filing that identifies the cost drivers in the workers’ comp system and better explains the approximately 40 percent rate inadequacy.
The Bureau said insurers’ experience deterioration is primarily due to increased losses, claims frequency, loss optimistic forecasts of statewide wage level growth, and increased levels of allocated loss adjustment expense that are likely, in part, attributable to the 2009 Ogilvie and Almaraz/Guzman decisions that addressed permanent disability awards.
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