Workers Comp Zone


Today’s rate filing by the WCIRB is a treasure trove of data and graphs on California’s workers’ comp system.

All hundreds of pages of it.

This “rate filing” is different. Ordered by former Insurance Commissioner Steve Poizner and current Insurance Commissioner Dave Jones to change the methodology of the pure premium rate process, the WCIRB has filed according to a different yardstick.

In coming posts I’ll highlight some of the more interesting stats and trends gleaned from the report. But today, let’s talk process.

A June 21, 2011 letter from Insurance Commissioner Dave Jones sets out the rationale for the change. Jones noted that prior methodology did not include information on current insurer filed rates and instead focused on changes sought from the last approved pure premium rates.

Pure premium rates are advisory only and in the past have not necessarily been indicative of what was actually charged employers. Continuing a process started by Poizner, Jones noted that the prior pure premium rate setting process “has contributed to the public’s confusion regarding current workers’ compensation rates and premiums charged to employers”.

Jones noted that:
“Since the prior approved pure premium rate is advisory and does not reasonably or accurately reflect current insurer filed pure premium rates,
manual rates, or charged rates, and thus does not have sufficient relationship to insurance market conditions, I direct the WCIRB to discontinue its practice of using the last approved advisory pure premium
rate level as the basis for the proposed change in its future pure premium
rate filing analyses.”

Wow, you’re probably thinking that watching paint dry is more interesting than reading this stuff.

But these changes in reporting will likely prove beneficial in tethering the advisory rate process to the real world.

In a press release accompanying the January 1, 2012 Pure Premium Rate filing, the WCIRB stated:
“Today, the WCIRB submitted its January 1, 2012 Pure Premium Rate Filing to the California Department of Insurance (CDI) containing pure premium rates proposed to be effective January 1, 2012. These pure premium rates represent the anticipated cost of losses and loss adjustment expenses expected to be incurred on policies incepting on or after January 1, 2012. In prior filings, the WCIRB proposed rates that were benchmarked to the approved pure premium rates; however, this has led to a misunderstanding among the public that a change in the approved pure premium rates will have a direct and commensurate impact on the rates filed and charged by insurers. In order to mitigate this misunderstanding and provide more meaningful information regarding insurer rates, the pure premium rates proposed in this filing are benchmarked to the average insurer filed pure premium rate and additional information regarding industry average filed and charged rates is provided in the WCIRB’s filing.
The average of the 494 classification pure premium rates proposed in the filing is $2.33 per $100 of payroll. This average proposed pure premium rate is 1.8% less than the corresponding average of insurer filed pure premium rates of $2.37 as of July 1, 2011. “

The WCIRB’s figures claim that the “Industry Average Charged Rate” for the 1st quarter of 2011 was $2.38 per $100 of payroll.

Public hearings on the proposed 2012 rate filing will be announced soon.

Meanwhile, get out your green eyeshades and pour over the report, which includes an Executive Summary as well as Parts A and B, loaded with stats:

Julius Young

Category: Understanding the CA WC system