WCIRB Proposes Huge Rate Increase

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WCIRB Says 29.6% Rate Increase
As we reported last week, Workers' Compensation Insurance Rating Bureau of California decided to file its largest ever recommended increase in the workers' comp pure premium rate. It is 29.6%. It was decided on a “party-line” vote that divided the 8 carrier members from the 3 public members.

Public members of the Governing Board all voted to oppose the filing, but in the deciding count it was carriers 7 and the public 3. One labor representative who voted last go around with her fellow public members was absent, but her vote wouldn't have changed the outcome.

Public members were also rebuffed in attempts to get the committee to recommend a more moderate increase in the pure premium rate. Public member Bruce Wick, director of risk management for the California Professional Association of Specialty Contractors, urged the committee to exclude the loss adjustment expenses (LAE) reported by the State Compensation Insurance Fund which is the approach that the Department has taken in past decisions.

State Fund's expenses are out of line with the rest of the industry and ultimately inflate the LAE ratio used in the pure premium rate calculation. WCIRB has attempted to deal with this anomaly in the past by tempering the State Fund's data by 50%, which the committee voted to do so again. BY including State Fund’s results the increase is considerably larger. The tally on that vote was also 7 to 3.

State Fund's unallocated loss adjustment expense ratio was a whopping 51.4% last year compared to 8.9% for private carriers, while State Funds allocated loss adjustment expenses were 9.8% compared to the industry’s 13.8% respectively.

CDI has regularly rejected the WCIRB’s approach in the past and is expected to do so again. The change is not insignificant. According to data presented by WCIRB, the LAE ratio for private insurers is 19.8% but this ratio balloons to 22.5% when State Fund's data is included in its entirety. Under WCIRB's methodology the LAE ratio comes in at 21.1%, which is what will be in the filing.

Employers in the construction industry did catch a break in that WCIRB's final recommendation will not include a $1 per hour increase in the dual-wage classification rate. WCIRB proposed the increase to account for wage inflation in the sector, but even carrier representatives had a hard time believing that wages for California's construction workers were actually going up. The vote rejecting the increase was unanimous.

Stay tuned for additional coverage and analysis in the premium edition of Workers' Comp Executive.

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