Flash Report: Mid-Year Workers’ Comp Rate Cut Filing Approved

California employers are in line for a seventh straight cut in their workers’ comp rates. The Workers’ Compensation Insurance Rating Bureau’s governing committee members approved a filing for a 7.2% rate cut for policies incepting on or after July 1, 2018.

If this proposal is ultimately adopted, the cumulative rate cuts since Jan. 1, 2015 will be 35%.

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

The committee’s insurer members heard a proposal from the public members’ actuary for a deeper 11.8% cut in rates. The difference stems from alternate methodologies for projecting medical loss development and the trending methodologies used to develop his rate projection. The lower 7.2% cut passed with the unanimous support of the carrier representatives. Both public members present opposed the motion and expressed support for the deeper cut.

The proposed rate cut is based on the industry’s year-end 2017 experience that shows a continued decline in the projected loss ratio for these July 1 policies. The data show continued improvement not only on the medical front, but also some improvement on indemnity benefit costs including temporary disability benefits. Loss adjustment expenses (LAE), however, remain high and are limiting the size of the rate cut.

Driving much of the improvement in the experience is the state’s accelerating claim settlement rate. The settlement rate had been improving for several years but the pace of settlements accelerated significantly through the end of 2017. The state’s improved claims environment that is encouraging the closure of claims stems from the SB 863 reforms as well as subsequent anti-fraud initiatives targeting workers’ comp liens. Last year’s increase in settlements followed the dismissal of nearly 300,000 liens.

The Baker workers’ comp reforms significantly increased permanent disability benefits for injured workers, while introducing new dispute resolution processes that may finally be impacting the system’s TD costs. Feeding into the settlement rate as well is the impact of the subsequent lien reforms from SB 1160. The measure has reduced the number of new liens coming into the system by 40%. This measure alone amounts to savings of roughly half-a-billion dollars.

Primary Factors In The July 1, 2018 Rate Cut

Lower Loss Development-6 percentage points
Inclusion of the 2017 Accident Year
-1 percentage points
New Drug Formulary-0.5 percentage points
Loss Adjustment Expenses (LAE)+0.5 percentage points