Calif. Commissioner Rejects Increase in Workers’ Comp Cost Benchmark

California Insurance Commissioner Steve Poizner has rejected – for the third consecutive time – a workers’ comp rate filing submitted on behalf of insurers by the Workers’ Compensation Insurance Rating Bureau (WCIRB) seeking a 27.7 percent rate increase.

“I will not approve a rate that passes avoidable costs through to California employers,” Poizner said. “Once again, workers’ compensation insurers have failed to demonstrate that they have adopted procedures to control costs or that they are operating efficiently. That is unacceptable. Our nation and our state are in the midst of a recession and unemployment rates are sky high – this is the absolutely wrong time for workers’ compensation rates to increase. Even in a better economy, I still wouldn’t budge on a rate increase without the industry first implementing the efficiencies we have recommended.”

WICRB said the rate increase of that amount was warranted primarily because of rising medical costs. However, the Benchmark is purely advisory and the California Department of Insurance (CDI) does not set workers’ compensation insurance rates.

Following a hearing on workers’ compensation rates in June 2009, Commissioner Poizner released a report detailing 27 efficiencies insurers should use to control costs. He instructed insurers that until they demonstrate that they are implementing these changes, he would not consider a rate increase.

Since 2008, the actual premium paid by California employers increased by 3 percent, the DOI said. During that same period, insurer filings with CDI claimed a 36 percent average increase in claims costs. Widespread discounting based on employer experience and other market factors has negated that increase, stabilizing employer costs, Poizner said. Hecharacterized this development as positive and as an indication that California’s competitive market is keeping workers’ compensation rates under control.

Meanwhil, Poizner also announced his decision to implement three reforms to improve and inject transparency into the review process. The reforms require the WCIRB to:

• Calculate future advisory pure premiums based on insurers’ actual filed rates rather than on theoretical previous benchmark numbers. Commissioner Poizner noted that under this approach, the current filling would actually have sought a rate decrease.
• In addition to industry average numbers, include in each future rate filing a table showing the proposed change for each individual worker classification, allowing employers to better understand the specific impact the filing could have on them;
• Use Department filing information and data from the WCIRB to evaluate overall workers’ compensation insurer profitability. This will enhance regulators’ ability to monitor the health of the workers’ compensation system and make it easier for consumers to understand insurance pricing, he said.

“The workers’ compensation rate-making system is long overdue for some much-needed reforms,” Poizner said. “The benchmark rate is only theoretical, and this has enabled insurers to file for and pass on rate increases to businesses. I will not allow this broken rate-making process to serve as cover for the insurance industry in its justification for higher rates that are simply not justified.”