Flash Report: California Rate Fight Breaks Out

Updated Copy: This article has been updated to correct the rate recommendation from the public members’ actuary. The correct data is represented in the article.

The Workers’ Compensation Insurance Rating Bureau and the insurance industry majority on its Governing Committee are filing again to increase workers’ comp pure premium rates for California employers. The carriers banded together to block an 8.2% decrease and instead pushed through a motion to file for a 2.7% rate hike effective September 1st (see chart).Average Pure Premium Rates

The difference is a whopping 10.9 points.

The request for higher rates flies in the face of record results for carriers whose profitability in workers’ comp “indicates significant redundancy in rates overall,” opines one influential industry watcher who reacted on condition of anonymity.

The Bureau is a private organization with quasi-governmental responsibility. It is financially supported exclusively by insurance carriers in whose interests it operates.

Last Increase Attempt Failed

Insurance Commissioner Ricardo Lara’s decision will be an important one for the state’s employers who are just beginning recovery from the financial effects of the pandemic. If approved, the filing would be the first-rate hike since 2015.

Last year, the insurance industry attempted to get a 2.6% rate increase with an extraordinary load on all employers for COVID-19 related costs. Commissioner Lara rejected the proposal and instead approved the industry’s tenth straight rate cut. The looming question now is whether there will be an eleventh.

The key differences in the two current rate projections are:

  • how the economic recovery will affect claim frequency and
  • what to do with the experience data from 2020

The alternative projection by the public members’ actuary, Mark Priven of Bickmore, is roughly five points lower based on a much lower frequency projection. Different projections for indemnity and medical inflation.

The Bureau is generally avoiding using the 2020 industry experience in its rate projection due to the disruptions caused by the pandemic and the resulting impact on the economy while using the actual claim frequency data from last year.

Had it also considered the claim cost data from last year, the result would be an even lower rate indication.

While acknowledging the distortion in the 2020 data Priven maintains that it still has some relevancy to rates going forward. “2020 was weird, but I think 2021 is going to be weird as well,” he told the committee. “I’m concerned about sitting here year from now and we’re still projecting from 2019 so I think it makes sense to give some weight [but] adjust as much as we can.”

Priven’s rate recommendation also uses lower trend projections for indemnity and medical severity. Whereas the Bureau is projecting a 1% inflationary trend on both, Priven’s methodology projects a flat trend for medical and only a 0.5% increase for indemnity. “On the medical side, I don’t know what to say. We’ve had ten years with no medical inflation. I appreciate that a lot of the medical payments are way out in the future, and the medical inflation assumption has come down quite a bit, but that’s a long time with no medical inflation to still be assuming that there’s going to be some,” he noted.

“I guess until there is really good evidence of seeing medical inflation, I put it at 0%.” Medical payments account for over half of the costs in the workers’ comp system. The Bureau used a 2.5% medical inflation trend in its last filing. Still, the California Department of Insurance actuaries noted the same trends that Priven points to and cut this down to 1%.

WCIRB officials indicated that they will make the filing official by the end of next week. Commissioner Lara will then schedule and hold a hearing later this spring.

Additional details will be in the next premium edition of Workers’ Comp Executive.