THE STATE’S workers’ compensation rating agency is preparing to file for a 2015 benchmark rate increase that is about 3.4% above the rates approved for this year.
The Workers’ Compensation Insurance Rating Bureau noted after examining industry data and trends that treatment costs for injured workers continue climbing and that claims are being filed with increasing frequency.
The recommended benchmark rate is also 7.9% above the pure premium rates that insurers had on file as of June this year.
The Rating Bureau could amend the filing in late September after it receives more data on claims costs through July of this year.
The new average benchmark rate level, across all class codes in California, should be $2.77 per $100 of payroll effective January 1, 2015, according to the Rating Bureau.
That’s compared with the $2.57 average insurers had on file as of July 1 of this year, and compared with the average advisory pure premium rate of $2.68 as of Jan. 1, 2014.
The insurance commissioner has the final say on the level of benchmark rates, but in the end insurers are free to price as they please, using the benchmarks as guideposts.
Benchmark rates cover just the cost of claims and administering them and don’t include insurers’ other overhead costs.
Rates need to increase in part because the 2013 workers’ comp reforms have failed to reduce costs to the extent anticipated.
In a cover letter accompanying the rate filing, the Rating Bureau cited a number of factors contributing to the proposed increase, including:
- Continued adverse medical loss development.
- Greater recognition of changing long-term medical paid-loss development patterns.
- Continued high levels of indemnity claim frequency.
- Claims-adjusting expenses that are higher than anticipated, in part attributable to lower-than-projected frictional cost savings resulting from the latest workers’ comp reform legislation, SB 863, which was passed in 2012 and took effect in 2013.
- Wage growth that is lower than forecast.
Claims frequency varies by region
A new report by the Rating Bureau, “State of the California Workers’ Compensation Insurance System,” released in August 2014, concluded that geography also plays a part in claims, which plays out in the final price you pay for your policy.
The report notes that overall, the number of indemnity claims (those that include payments to workers for lost time at work) has steadily increased over the last few years, largely driven by inordinate growth in claims numbers in Southern California.
In the last three years, the number of indemnity claims has increased by 19% in Los Angeles County, 14% in the Los Angeles Basin and 9% in San Diego, according to the Rating Bureau (see chart to the left).
“The frequency of permanent partial disability claims – including those involving cumulative injuries or multiple injured body parts – has increased sharply in the Los Angeles area,” the report says.