Friday, May 08, 2015

Insurance Commissioner approves 10.2 percent workers compensation decrease

Please see below recommendation of 10.2 workers compensation reduction for July 1. Keep in mind this is not binding on insurance companies.

Insurance Commissioner Dave Jones wasted little time in approving a 10.2% cut in the state's advisory pure premium rates as requested by the Bureau effective July 1, 2015. The decision on the mid-year rate change came quickly and will give the industry more time than usual to review the findings and decide whether or not to use the approved rates.

The Bureau is a non-governmental private organization financially supported by insurance carriers.

Besides the cut, the most interesting fact is that the proposed pure premium rates were made without the use of the State Compensation Insurance Fund's loss adjustment expenses. State Fund's LAE is way out of line with industry norms.

Had State Fund's data been included, the rate cut – if there would have been a rate cut - would have been significantly smaller. The Bureau will not quantify that number.

The department's proposed decision reiterates its earlier finding that State Fund's loss adjustment expenses (LAE) “include a significant component of excess expense," the decision reports. State Fund's experience is being excluded entirely rather than being tempered at just 50% as had been the case in years' past.

The Commissioner's decision sticks with the Bureau’s recommendation of $2.46 per $100 of payroll. It was 3 cents higher than the best estimated presented by the public member's actuary. The benchmark rate is a weighted average and is not indicative of what any individual employer will pay, which is influenced primarily by their industry classification and loss history.

Compline’s rating system and other tools will have the new rates in and running within a couple of days.

The Insurance Commission’s decision concluded “the California workers' compensation insurance industry's profitability indicates that the pricing environment continues to benefit from substantial investment income relating to substantially higher premiums in prior years and associated reserves, resulting in an average market price level that is below what may be sustainable without this underlying level of support.”

But it is State Fund, which has the highest investment income relative to premium and depends upon its investment income to sustain its high expenses.

“However,” the written decision continues, “the average charged rate in 2014 of $2.93 appears much stronger relative to the WCIRB's July 1, 2015 indicated pure premium rate of $2.46. If lower pure premium rates are maintained in future filings, it appears that charged rates may be approaching long-term sustainable levels.”

Jones' decision adopted in full the proposed decision and order drafted by CDI hearing officer Patricia Hein, a former State Fund attorney.

Scott Hauge

Small Business California
2311 Taraval Street
San Francisco, CA 94116

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