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 Pure Premium Rates Go Way Up for Workers’ Comp



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California Insurance Commissioner Dave Jones' pure premium rate decision was released Friday night.  That was in order to avoid general media attention or scrutiny. It was also issued in a meaningless - to actual people or most general media reporters’ - hyperbole. And that’s too bad because it was a deeper more meaningful decision than most of will realize. Commissioner Jones has acted to protect both businesses and carriers.

Let’s get to the point: For California businesses with an expiration dates of January 1st or later the actual average overall rate increase is some 15.64%. That means over the actual approved January 2012 rates and that comes out to 6.81% or nearly 7% over the actual approved July 2012 rates. Insurance polices are annual so most California employers can expect that 15% increase, and fewer credits. Workers’ Comp Executive reached these numbers by comparing the actual approved overall increases or decreases of all of the January 1st, 2012 rates to the approved January 2013 rates, ditto with the 7/12 to 1/13 rates.

On the screen beside me you can see the wording of the Commissioner’s statement:

                “The WCIRB is directed to adopt an Advisory Cost Benchmark at $2.56 per $100 of employer payroll, and pure premium rates for individual classifications shall be adjusted in accordance with the adjustment of the Benchmark noted in the Proposed Decision in this matter. This reflects a 2.8% change from the average filed per premium rates of $2.49 as of November 9, 2012.” – from Commissioner Jones’ rate decision.

What does that mean? Nobody understands this and the Department keeps changing the basis to make themselves less culpable, but we've translated this for you. The difference between the average rates underlying your policies and the just approved rates is 15.64% -- this is not an abstract 2.8% based on a benchmark that changes every time a carrier files new rates or construction payrolls change. This is the actual change in average rates.

The Commissioner’s decision -- however - and this is important - did go on to take a pretty good and not so subtle slap in the face of State Compensation Insurance Fund’s president Tom Rowe. Rowe who sits on the WCIRB’s Governing Committee as a matter of law, lead a faction of the Committee  to reject the Actuarial Committee’s recommendation and to recomend nearly a zero increase. He was joined by the public members and by the ACE Insurance Company representative. Here on the screen is what the Commissioner said in his decision in reply:

                “I find after reviewing all of the facts … The Department actuaries considered the facts carefully and concluded the WCIRB’s Governing Committee decision to reject its own Actuarial Committee’s recommendation was not sound and was based on unsupported speculation of savings that might eventually come from SB 863 reforms. Speculation is a dangerous game in the insurance business as demonstrated by the insolvencies that occurred in the 1990s.”

According to industry speculation, Rowe lead the insurgency to cut the recommendation and he did it in order to drive other carriers’ investment – or surplus - out of California. If this had actually played out State Fund – which is having trouble not only competing but servicing its customers – would have grown in premium volume at the expense of the private market to offset its own losses from underwriting and expenses.

But California’s carriers, wise to the Rowe tactic, worked hard behind the scenes to advise and inform the Department of the potential consequences of an even harder market.

So while this tough decision to protect the solvency of big insurers, is made especially more difficult by the hardships being felt all over the state by small and medium sized businesses who will be affected by having to pay more in workers' comp costs, even tougher would be an extremely hard market and one where our carriers refused to compete. Commissioner Jones is charged with both keeping the industry acting in a fair manner to protect consumers – including business - but also with protection of the solvency of California’s insurers. This decision was the fairest possible to both sides.

Commissioner Jones decision is believed to be the first time in history a Commissioner has increased rates more than what the industry officially asked for. But as we pointed out earlier the behind-the-scenes machinations were substantial.

Also the issuance of this decision sets in motion the issuance of the first experience mods for 2013. Compline will begin issuing 2013 X-Mods within about an hour of receiving the data. Based on information from the Bureau it will take around two weeks to update all 2013 X-Mods through the first quarter.

Tomorrow we’ll have a special report on how you can explain these rates to your insured’s, clients and prospects alike.

For the Workers’ Comp Executive, I’m Dale Debber