For the first time since July 2007, the insurance commissioner has approved a mid-year increase in the pure premium advisory rates developed by the Workers’ Compensation Insurance Rating Bureau (WCIRB).
In the 18 years since open rating began in California in 1994, this will be the 7th time a mid-year rate increase has been approved.
While the overall average has not increased much, from $2.41 to $2.51 per hundred of payroll, a 4.1% increase, many class codes are affected dramatically.
For instance, the pure premium advisory rate for the Machine Shop class was $3.22 on January 1, 2011, then $4.88 on January 1, 2012, and now $5.28 on July 1, 2012. That’s a 64% jump in the 18 month period.
This is a double-whammy to those employers who are renewing their policies in the second half of the 2012 calendar year.
Class Codes that affect almost everyone, Clerical (8810) and Sales (8742), have gone up 50% and 43% respectively over the 18 month period.
The obvious question: Why?
The May 15 testimony by Bill Mudge, President of WCIRB and Dave Bellusci its Chief Actuary cite a number of factors.
Continued Adverse Loss Development
- Deteriorating loss development, as doctors treat more often, prescribe more pain medications, and recommend more expensive tests and surgeries.
- Deteriorating claims settlement rates as more body parts and psych disorders (sleep disorder and sexual dysfunction) are added to injury allegations.
- Sharp increase in late reported claims, driven by post-termination and continuing trauma claims–always a consequence of higher unemployment.
- Increased claim complexity, due the “Olgivie” and “Almaraz-Guzman” court decisions. Some closed claims have even been reopened as a result.
Growth in Allocated Loss Adjustment Expense
- As more issues have arisen to litigate, the defense expenses have also risen.
- With doctors treating more, there is more utilization review expense.
- With cases staying open longer, there are more medical exams when there is a difference of opinion on the injury
- With more body parts and disorders alleged, more tests are needed to determine the extent of injury
High Frequency of Indemnity Claims
- Doctors are being more conservative and prescribing more time off for injured workers.
Our advice:
- Meet with your broker early, and get started on your renewal marketing. Your broker can get an early indication of the increase in the Pure Advisory Rate and Carrier Base Rate for your class codes.
- Budget for an increase.
- Get an accurate estimate for the next annual payroll by class code for your policy year, so that you are not paying for an optimistic estimate.
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