The first workers’ compensation rate hike in California in a decade was announced late Friday afternoon. Insurance Commissioner Ricardo Lara approved an 8.7% hike in the workers’ comp advisory pure premium rates for policies incepting on or after September 1, 2025. Based upon comments from the Department’s actuary cautioning carriers to have more disciplined underwriting, brokers might expect fewer discounts and less schedule rating.
The decision closely follows the recommendation for an 8.1% increase from the public members’ actuary, Nina Gau of Bickmore. The insurer majority on the committee rejected her proposal and voted unanimously to request an 11.2% rate hike.
The Bureau is a private organization with quasi-governmental responsibility. It is financially supported exclusively by insurance carriers in whose interests it operates.
The Department raises concerns about the level of discounting that carriers are applying via schedule rating and other rating plan credits to policies in California’s competitive market.
Why The Difference
The difference between the Department’s decision and the public actuary’s recommendation is linked to different approaches in estimating the ultimate costs of medical benefits for claims developing under the upcoming policies. Bickmore gives equal weight to the paid and incurred loss development methods for determining ultimate costs, whereas the Department opted for a 60/40 split between the paid and incurred methods, resulting in a slightly different ultimate loss projection.
“Accident year combined ratios, evaluated as of December 31, 2024, have remained above 100% for each of the past five years, exceeding 110% for the most recent four accident years. The combined ratio for accident year 2024 is 123%—the highest level in nearly 15 years. At the same time, current charged rate levels are among the lowest seen over the same period,” CDI actuary Serina Wu noted in her evaluation.
“The Department acknowledges that the average impact of schedule rating and other rating plan credits remains above 30%, even as the WCIRB projected combined ratios for recent accident years have been deteriorating. This highlights the importance of carefully evaluating pricing adequacy and maintaining underwriting discipline by insurers. Moving forward, close monitoring of the sustainability of these credits will be essential given the further deterioration of the combined ratios in recent years.”
Based on Wu’s evaluation of the evidence submitted during the public hearing process and the Bureau’s filing, CDI hearing officer Yvonne Hauscarriague issued a proposed decision recommending an 8.2% rate increase. Commissioner Lara adopted the proposed decision with no additional comment.
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