Flash Report: Will Pure Premium Increase or Decrease?

Insurance Commissioner Ricardo Lara held a hearing regarding California workers’ compensation pure premium rates yesterday. He heard from both the insurance industry and from employers and organized labor representatives on the Bureau board. They sang very different songs.

The Workers’ Compensation Insurance Rating Bureau explained why it thinks there needs to be a 2.7% increase.  The countervailing argument from employers and organized labor argued for an 8.2% decrease. The difference in the two rate recommendations of nearly 11% is the largest in over a decade and means the difference between a 12th straight rate decrease or the first increase since 2015. A decision is due in early July.

The filing by the Bureau is the first under the new annual filing schedule that will have new rates effective September 1st rather than January 1st each year.

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

The Bureau sought a rate increase last year amid the COVID-19 pandemic as well but was rebuffed. It filed to add a surcharge on every employer regardless of exposure to the pandemic from China. Commissioner Lara rejected that portion of the filing and ultimately approved a 4.6% rate cut for January 1st, 2021.

“The data now indicates that the total cost associated with COVID-19 claims have been much lower than [the Bureau] initially thought,” — Commissioner Ricardo Lara  

“At the time, given the unique nature of the pandemic, the new and uncertain data available, and the fluidity in California’s response, I was really concerned that there wasn’t sufficient, credible, undeniable data to support a built-in, inflexible adjustment for Covid-related costs at the time. For that reason, I decided to approve an advisory pure premium rate that did not include a Covid adjustment,” Commissioner Lara explained. “The data now indicates that the total cost associated with COVID-19 claims have been much lower than [the Bureau] initially thought, which is good news for workers, good news for employers, and for our overall workers’ compensation system.”

Bickmore actuary Mark Priven testified on behalf of the public members – California employers and organized labor – who sit on the Bureau’s Governing Committee. Priven says about half of the difference in his rate recommendation, and the Bureau’s filing is linked to long-standing differences in methodologies. However, the bulk of the difference is due to different outlooks on claim frequency and medical inflation, with the Bureau projecting higher rates for both.

Priven’s results have consistently proven to be more closely related to outcomes than the Bureaus.

CDI actuary Mitra Sanandajifar delved into each of these issues in her questioning of Priven and the Bureau’s representatives. She also asked for additional information from each to support their filing. The Department keeps the record open until that additional information is delivered, which is expected later today or tomorrow. A decision is then due within 30 days of the record closing.