The California's Workers' Compensation Insurance Rating Bureau is deferring until at least next year any plans to change its advisory pure premium rate above July 1 industry average levels, halting plans for an increase of more than 12% above that average. WCIRB's Governing Committee is opting to keep levels at the industry average because members believe it is possible that a new workers' compensation reform law could cut workers' compensation insurance rates by greater amounts than can be quantified.
The pure premium rate filing made on Oct. 1 to the Department of Insurance comes two weeks after Gov. Jerry Brown signed a new workers' compensation reform bill, SB 863, that his office claimed would reduce workers' compensation insurance rates for the first time in four years. Workers' compensation insurance costs in California have risen from $14.8 billion to $19 billion since 2010, but Brown's office said the bill would save businesses $1 billion in workers' compensation losses in 2013, while increasing treatment to disabled workers by 30% and improving the delivery of medical treatment and retraining.
The WCIRB's committee approved an initial rate filing that was submitted to the DOI on Aug. 21. That filing proposed Jan. 1, 2013, rates averaging $2.68 per $100 of payroll, about 12.6% higher than the July 1 industry average of pure premium filings that are typically used as an industry benchmark. The proposed hike was based on March 31, 2013 premium and loss experience, the WCIRB said in a statement. WCIRB calculated the impact of SB 863, indicating the provisions that can be evaluated would reduce the cost of losses and loss adjustment expenses on 2013 policies by 4.9%. WCIRB also developed data from second-quarter 2012 numbers showing loss development deterioration of 2% in the indicated pure premium rates, which is attributed mostly to increased indemnity and medical loss development. Given those findings, WCIRB said the Jan. 1 advisory pure premium rate could be $2.60 per $100 of payroll, about 9.3% above the industry average filed pure premium rate as of July 1. WCIRB Communications Director Jack Hannan said the committee did not believe a 9.3% increase reflected in the update to be necessary given information needed to provide accurate rates.
But the bureau, in a statement, indicated that "given the unusually high level of uncertainty surrounding SB 863, including regulations that have not been promulgated, and the potential for current cost savings beyond that which is currently quantifiable, the WCIRB is not recommending a Jan. 1, 2013 increase in the advisory pure premium rate level." Instead, it will seek the industry average pure premium filing as of July 1, of $2.38 per $100 of payroll.
WCIRB is expected to provide further updates to the state insurance commissioner on SB 863's cost impact and effect on advisory pure premium rates. Hannan said the committee will again consider rate changes after the first quarter of 2013 in anticipation of new rates July 1. "We'll have a couple more quarters of data," he said, adding that the Department of Industrial Relations is set to begin talking about the rules to implement SB 863 that will further clarify the new law's potential for rate reduction.
The top five writers of workers' compensation insurance in 2011 in California were State Compensation Insurance Fund of California, with market share of 12.92%; Hartford Insurance Group, with 7.98%; Travelers Group, with 7.81%; American International Group, with 5.93%; and Zurich Financial Services Group, with 5.57%, according to BestLin.