California Workers’ Comp Rating Bureau Chief’s Message to Comp Community

The California workers’ compensation marketplace today remains generally healthy for insurers, employers and injured workers, the chief of the Workers’ Compensation Insurance Rating Bureau of California said in an open letter earlier this month.

The WCIRB continues to experience the “overwhelmingly positive outcomes” from comprehensive system reforms passed with Senate Bill 863 in 2012 as well as more recent reforms, Bill Mudge, president and CEO of the rating bureau, said in his letter posted on the organization’s website.

“These reforms fueled, in large measure, an environment of stable claims frequency and loss severity (in both indemnity and medical) and a broadly competitive market, with increased benefits for injured workers,” Mudge wrote.

Mudge said a stable loss cost environment coupled with the growing California economy has contributed to eight consecutive advisory pure premium rate reductions approved by the insurance commissioner from 2015 through 2019.

“For insurers, the WCIRB is projecting through 2018 a sixth consecutive year of California workers’ compensation industry accident year combined loss and expense ratios below 100 percent — the longest stretch of below 100 combined ratios over the past 40 years,” Mudge wrote.

Mudge also outlined some challenges:

Costs for claims handling and dispute resolution (i.e., frictional costs) are the highest across all states’ workers’ compensation systems, are greater today than the annual cost of paid indemnity benefits to injured workers and, in total, are more than double the cost to provide a dollar of benefits compared with the median state workers’ compensation system in the United States.

Regional differences across California when examining claims frequency, cumulative trauma, permanent disability and frictional costs are key to stakeholder understanding for sellers (insurers) and buyers (employers). Despite a single statewide workers’ comp system, cost drivers vary widely in California.

The percent of claims involving cumulative trauma has significantly escalated in the past decade, accounting for more than 15 percent of indemnity claims, and is highly concentrated in Southern California — with the costs of cumulative trauma claims (both losses and frictional costs) being a uniquely California phenomenon when compared with other states.

Duration of medical payments in California is prolonged compared with other states’ workers’ comp systems, causing future medical loss costs in California to be particularly susceptible to changes in medical inflation patterns.