In about a week the California Workers’ Compensation Insurance Rating Bureau will be filing its official written recommendation for an adjustment in California’s advisory workers’ comp rates. On April 20, 2022 the WCIRB Governing Committee voted after hearing a presentation by WCIRB Chief Actuary David Bellusci.
The recommendation to Insurance Commissioner Lara will be to set the non-binding “pure premium rate” at $1.55 per $100 of payroll, with a small additive adjustment for COVID claims. By comparison, in its 2021 filing, the WCIRB recommended $1.54 per $100 of payroll. At that time Mark Priven of Bickmore had recommended a lower figure, and Commissioner Lara approved $1.45 per $100 as the basic rate. Pure premium rates are advisory, and as of January 2022 the industry average filed rate was $1.77. What insured employers actually pay varies by experience rating, discounts and other factors.
But the advisory comp rates do set a benchmark for comparisons regarding the state of the California comp industry and they carry weight as policymakers look at the system.
At the April 20, 2022 meeting, two public members of the WCIRB proposed that the advisory rate be set at $1.42 per $100 of payroll, some 13 cents lower than the WCIRB’s Actuarial Committee had recommended. They based their vote on the assessment of Bickmore’s Mark Priven, who uses a slightly different actuarial methodology than the WCIRB. Their motion to adopt $1.42 as the figure failed by a 7 to 2 vote.
Subsequently, the Governing Committee adopted the Actuarial Committee figure of $1.55 per $100 of payroll on a 7 to 2 vote, public members dissenting. This is only 1 cent more than the figure they had recommended in 2021.
If we “look under the hood”, what does this all mean?
The key takeaway is that California wage gains/wage inflation figure projected at 3% is offsetting increases in workers’ comp losses.
Higher wages lift all boats, it would seem.
The WCIRB Actuarial Committee analysis to the Governing Committee noted a sharp increase in 2021 claim frequency, a projected 1.0% increase in indemnity severity and a modest projected increase of 1.5% in medical loss ratios. But the wage gains and the projected improvement in loss adjustment expense ratios (32.1% of losses compared to 33.5% in the 9/1/21 WCIRB rate filing) resulted in a very minor recommended increase to $1.55 versus what the WCIRB recommended in 2021 ($1.54 per $100).
Another takeaway: It does not appear that the WCIRB is panicked about possible medical inflation or claims handling inflation. That’s good news for injured worker advocates who might have feared inflationary pressures in the economy would lead to significantly higher advisory rates. Injured workers and their labor allies are very much interested in an upwards adjustment to workers’ comp permanent disability benefits, which have not been increased since 2014. If the WCIRB found system costs spiraling out of control due to inflation, that would make the PD increase conversation much harder.
In addition, Bellusci presented a separate analysis of COVID claim costs together with several think-tank analyses of possible future COVID illness and deaths.
After the official rate filing the matter will go to Commissioner Ricardo Lara for a rate hearing and analysis by CDI staff. Lara will be able to consider the Bickmore rationale for a lower advisory rate as supported by the Governing Committee public members. In the past he has sometimes “split the baby”.
You can check out my recent post on SB 1458 and gender pay disparity here: