Dear WCAN Member:

This week, the Workers’ Compensation Insurance Rating Bureau (WCIRB) announced that it is recommending a 29.6% increase in what is known as the Advisory Pure Premium Rate for workers’ compensation insurance for policies starting on January 1, 2011.

The potential for such a large increase is unwelcome news for employers, especially in the current economic downturn with statewide unemployment stagnant at 12%. The recommendation also raises concerns about the stability of California’s workers’ compensation system and status of the 2003-04 legislative reforms.

But will rates really go up nearly 30% next year? Are the reforms still working?

Following is some background on WCIRB’s filing with the insurance commissioner and WCAN’s take:

•The 29.6% proposed increase reflects two dynamics. The first is that costs have been steadily increasing for several years, particularly the costs for medical treatment. (Medical costs per claim have increased by 60% since 2005.) The second dynamic is that previous increases proposed by the WCIRB (23% for 2009 and 24% for 2010) have been rejected by the Insurance Commissioner. Since there has been no adjustment in the Pure Premium Advisory Rate since January 2009, it has not kept pace with the rate of cost increases during that period, according to the WCIRB. The size of the latest proposed increase, therefore, is even larger. (Recent news reports state that costs were greater than premiums collected in 2009, leading insurers to lose $1.5 billion last year.)

•The WCIRB’s recommendation is the very beginning of the ratemaking process, not necessarily the final number. The recommendation now moves to the Department of Insurance staff, which will do its own review and make a recommendation to the Insurance Commissioner. The Commissioner will release his final decision on rates, which could include a complete rejection of the recommendation by Insurance Department staff, as has been the case previously.

•The end-result of this process is still only a recommendation that is non-binding on insurers. Each insurance company sets rates based on its own costs (a reason why a competitive market and the ability to shop around its good for employers.) Many insurers have already been making adjustments to their rates during the past 18 months – averaging around 5% according to news reports. Unlike the WCIRB filing, therefore, insurers are unlikely to require such a large single increase in rates.

•These numbers are statewide averages for all industries – not necessarily what your business will be charged. Your rates are based on numerous factors, including your industry, job classifications, injuries among your employees, and other factors.

Should employers still be concerned? Absolutely. The sharp increases in medical treatment costs and the threat posed by the Almaraz-Guzman and Ogilvie cases – which have thrown open the door open to subjective, inconsistent rating of permanent disability – and rollback attempts in the Legislature all pose significant threats to maintaining a stable workers’ system.

Following are some recent news items about the status of California’s workers’ compensation system that you might find helpful:

How California can rein in workers' comp rate hikes, San Jose Mercury News

Workers' comp may be headed for another rough ride in California, Oakland Tribune

Workers’ comp insurance becomes money-loser, Sacramento Bee