Sacramento, CA – California Insurance Commissioner Dave Jones was correct to recognize the increasing costs in the state’s workers compensation system when he made his pure premium advisory rate recommendation of $2.70 per $100 of employer payroll, says the Association of California Insurance Companies (ACIC).
“Commissioner Jones made the right move when he recognized the ongoing cost increases in the state’s workers compensation system. The Commissioner is taking a responsible position and being mindful of the importance of managing solvency and the ability to cover costs,” said Mark Sektnan, ACIC president. “California’s workers compensation system is still in flux as benefit increases are being implemented and the reforms of SB 863 are rolled out. Some initial data on the reforms is available and there is both good and disconcerting news. Basically, it is a waiting game to find out if the cost savings will occur or if unexpected developments will curb projected savings from being realized.”
Friday, the California Department of Insurance announced a pure premium rate of $2.70 per $100 of employer payroll for workers compensation insurance policies renewing on January 1, 2014. This recommendation is advisory. Insurers will take this recommendation and apply it to their book of business and determine the most appropriate rates necessary to cover costs and compete in the market place. Insurers on average had a combined ratio of 120% in 2012. That means on average insurers paid out $1.20 for every $1.00 collected in premium. Combined ratios have been above 100% since 2008. (Recent combined ratios: 2008 118%, 2009 138%, 2010 140%, 2011 140%, 2012 120%).
“The benefit increases are hitting the system, while realization of the projected savings from SB 863 remains in question. It is very common after a major reform effort for the system to remain in flux,” said Sektnan. “Indemnity costs are increasing as expected, while medical costs continue to increase. The high costs of opioid use continues to drive costs. Now we are also seeing litigation challenging the lien filing fees that were expected to reduce costs. A new Independent Medical Review (IMR) process is being implemented and while this new system is expected to result in savings, an unexpected spike in IMR requests is raising flags. It will take time to see if IMR decisions create new treatment protocols and reduce costs. There remain many “moving parts” and it will take time to see if the projected savings are actually realized.”