XCII Bad News Travels Faster

By: Publius

Over the past several years, the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) has been the subject of withering criticism from the insurance commissioner and various “independent” researchers. But has this criticism always been accurate?

At the demand of the Department of Insurance, WCIRB assembled a group of experts to help it analyze various trends and developments in the system in an effort to comprehend what is happening earlier than actual experience would allow. These experts come from labor, applicant attorneys, insurance claims professionals and research organizations.

Some of these experts actually show up for the meetings intended to help WCIRB analyze the effects of significant legislative, regulatory or judicial developments, and how those developments will affect the costs of workers’ comp claims. Their input is funneled to the Actuarial Committee, which in turn crunches the numbers for the Governing Committee, which in turn goes to the commissioner as a pure premium rate adjustment recommendation.

On April 28, the Department of Insurance will hold a hearing on the proposed 24.4% pure premium increase  recommended by WCIRB. The pure premium number is intended to reflect aggregate losses and loss adjustment expenses within the workers’ comp insurance system.

WCIRB has already demonstrated that the current pure premium is inadequate. Failure to adopt this recommendation will make the pure premium rate even more inadequate. As loss ratios climb, it is evident to many observers that the kind of toxic competition of the late 1990s is revisiting the system. And the outcome of that last time was system failure and an overloaded State Fund.

The response to that was to shoot the messenger. In this case, it is to shoot the messengers. In adhering to the commissioner’s demand, WCIRB no longer relies solely on the insurance industry. Indeed, the California Workers’ Compensation Institute (CWCI) is playing an increasingly important role in predictive analysis that WCIRB is attempting to engage in to improve its accuracy in ascertaining where this system is heading. Business, labor, applicant attorney and omnipresent CHSWC representatives also are part of this predictive team. Somehow, their participation, or lack of participation, is seldom the subject of criticism.

Indeed, it is apparent that the easiest way to escape scrutiny over the development of insurance rates is to disagree with WCIRB. In other words, there is no constituency for saying that all’s not well in comp land.

The governor has already weighed in, stating that now is not the time for insurance premiums to reflect the actual cost of insurance. The commissioner has vowed to get to the bottom of the increases in medical costs, likely engendering yet another flogging of utilization review and ignoring that the Legislature and the California Supreme Court have decided that UR is mandatory.

This leaves the system in an ironic position. On one hand, WCIRB will be criticized even though its recommendations are based on a consensus of professionals within and without the industry. Critics will argue that now is not the time to draw conclusions from what may be anomalous facts not truly reflecting what may happen over time. Recent decisions by the Appeals Board (Almaraz, Guzman and Ogilvie) may be overturned. Medical cost containment expenses will be branded excessive, as though the history of the California workers’ comp system is that medical providers embrace conservative treatment in the one system that pays based on fee for service.

Thus, to this way of thinking, the very predictive analysis demanded by the commissioner is not credible because it lacks the actual experience only time provides. Frankly, then, what’s the point of having WCIRB do all this?

At the end of the day, no one wants to see the price of workers’ comp insurance increase. If there is even a hint that may happen, any number of critics argue that costs are not increasing as quickly as WCIRB suggests. In the short term, this is the stuff that sound bites are made of. In the long term, disbelief is a recipe for system failure.



PUBLISHERS' NOTE: Publius is written by a consortium of writers, sometimes internal, most frequently external. Workers' Comp Executive believes that it has the responsibility to air most viewpoints and welcomes the comments of its community on any subject. Publius does not necessarily represent the views of this publication.