Going Up
Issue #77
October, 27, 2008
On October 23rd, California Insurance Commissioner Steve Poizner gave his approval for an average workers' compensation pure premium rate increase of 5%. This ruling rejects the call for a 16% rate increase by the Workers Compensation Insurance Rating Bureau (WCIRB), or the advice of the actuaries at the California Department of Insurance which recommended a 9.4% increase.
I am always amazed and amused at this process, because in the end, it is the free market that will control the rates. Here are some viewpoints on the subject:
The Workers Compensation Insurance Bureau
According to their website, the WCIRB is a California unincorporated, nonprofit association comprised of all insurance companies licensed to transact California workers' compensation insurance in California, and has over 400 member companies. The WCIRB is a licensed rating organization and the designated statistical agent of the California Insurance Commissioner.
The WCIRB collects premium and loss data on every workers' compensation insurance policy and, using complex statistical and actuarial techniques, produces pure premium rates for workers' compensation insurance.
According to the WCIRB's January 1, 2009 pure premium rate filing submitted to the Commissioner on August 15, 2008, the WCIRB recommended a 16.0% increase in pure premium rates to be effective January 1, 2009 with respect to new and renewal policies as of the first anniversary rating date of a risk on or after January 1, 2009.
According to the most recent report on losses and expenses from the WCIRB, hospital, physician and medical costs continue to go up, as well as indemnity benefits, all contributing to the necessity for rate increase.
The Insurance Commissioner
The Insurance Commissioner, an elected official, takes a different view of the matter. According to Mr. Poizner, "Despite this adjustment to the Claims Cost Benchmark, it is clear that insurance companies remain profitable in California and still have room to reduce the premiums they charge. Insurers should work with their employer customers to control the cost of workers' compensation insurance and help California businesses to remain financially healthy and competitive. While I have no control over worker's compensation insurance rates, I nevertheless encourage employers to work with their insurance agents and brokers to shop for the best prices."
This tone is consistent with the Commissioners prior comments on proposed rate changes, and certainly takes a popular political view of the matter.
The Market
Is the WCIRB, working with the law of large numbers, correct in their assessment of rate adequacy? Or does the Insurance Commissioner have special insight, even in disagreement with his own actuaries? In the end, it is the insurance marketplace that will decide what rate is necessary to deliver benefits and remain profitable.
So far, seven insurance companies have filed their rates in October. Each of those filings contains a rate increase, which on average amounts to 5.3%. While there appears to be no agreement on the exact amount, one thing for sure is that for the first time since 2003, rates are going up.
Kempkey Insurance Services goes beyond insurance by designing and implementing risk management programs for growth oriented businesses. We help our clients maximize the value of their insurance dollars and minimize their potential for unwanted surprises. Ed Kempkey can be contacted at (888) 536-7539 extension 2188, or at ed@kempkey.com.