Workers Comp Zone


The State Compensation Insurance Fund announced this week that it expects a 1% average decrease in its workers’ comp premiums.

According to a SCIF statement, although some accounts will see a rate hike and although SCIF will adopt some “rate relativity” adjustments, overall employer policyholders will see a slight decrease in workers’ comp premiums.

That’s good news for California employers and for the California economy.

And it would seem that it’s a confirmation of the rate finding adopted last week by Insurance Commissioner Dave Jones.

Let’s look at some quick history on rates.

In 2003, average charged comp rates were $6.29 per $100 of payroll. In the latter part of 2004 that came down to $5.49.It decreased in 2005 to $4.36 per $100. During the early years after the 2004 reforms it appeared that although comp costs were coming down, they were still at a level where insurers were reaping record profits.

By the second half of 2006, industry average charged rates were $2.85 per $100 of payroll.

Since then, average charged rates have been steady as the following indicate:
2007 $2.30
2008 $2.16
2009 $2.29
2010 $2.30
2011 $2.38

What a particular business may actually pay depends on a number of variables which include risk classification codes, discounts and other factors.

The “average filed pure premium rate” in early 2011 is $2.37 per $100 of payroll, close to the average charged rate.

For years the WCIRB and the Insurance Commissioner focused on an advisory benchmark, the “pure premium rate”.

But now the California Department of Insurance has done a reset. There will still be an advisory “pure premium rate”, but the focus will be on comparing rates to what the marketplace is actually charging.

Now Insurance Commissioner Dave Jones has adopted $2.33 as an advisory pure premium rate. Again, this is not binding on insurers and depending on various factors, including the risk associated with the industry and their loss experience, rates can vary greatly.

What’s up here?

Part of the confusion is over the whole concept of rates. Manual rates, average rates, pure premium rates, filed rates, discounted rates, classification codes, X-mods.

Enough to make your head spin.

While most comp system stakeholders appear to be happy with the new measurement methodology reset, there are some who have been wary (as I noted in my last post). After all, the WCIRB repeatedly asked for whopping increases in the “pure premium rate”(requesting increases of 23.7% in 2009, 22.85 in 2010, and 27.7% in early 2011, all of which were rejected by then- Insurance Commissioner Poizner. And the WCIRB was on the verge of filing for another large increase this year before they elected to not file for an increase.

But measuring by comparison to average rates filed and average rates charged employers by insurers seems to make sense. I have no reason to question the WCIRB or Department of Insurance data based on documents I’ve seen.

Stated another way, what the marketplace is actually doing seems to be the important yardstick rather than comparing against past WCIRB rate requests and recommendations.

That’s not to say that some employers won’t see comp premium increases.

In a WCIRB recommendation and proposal filed August 22,2011 with Dave Jones, the WCIRB noted that “Of the 491 standard classifications which have been in effect and for which an industry average filed pure premium rate can be computed, the proposed January 1, 2012 pure premium rates are lower than the industry average filed pure premium rates as of July 1, 2011 for 319 classifications, higher for 168 classifications, and the same for 4 classifications”.

So while some industries could see upward shifts in comp premiums, the average comp premium seems to have decreased. Again, this week’s SCIF announcement would seem to buttress that finding.

Looking back to average rates, for $2.30 per $100 payroll in 2007 to $2.38 per $100 of payroll in 2011, workers’ comp rates in California have been incredibly stable.

Since the Brown Administration is concerned about growing the California economy, perceptions matter.

Julius Young

Category: Understanding the CA WC system