Workers’ Comp Agency Recommends 4.4% Rate Increase

workers comp
The agency that helps set workers’ comp rates is recommending they increase 4.4% at the start of next year. The Workers’ Compensation Insurance Rating Bureau in early August recommended that the average benchmark pure premium rates for all of the state’s class codes in-crease to $2.62 per $100 of payroll for policies incepting on or after Jan. 1, 2014.

A good portion of the rate increase is due to increased claims filings, as well as rises in medical costs and permanent disability benefits that partly took effect this year and take full effect in 2014.

This year, benefit increases added an-other $620 million in system costs, the Rating Bureau has estimated. In 2014, the increases will add another $590 million in costs for all workers’ comp payers in the state.

That said, cost increases are expected to be offset by savings from reforms contained in SB 863, which was signed into law in 2012 and took effect at the start of this year.

All told, the Rating Bureau projected the $1.2 billion in additional permanent disability benefits will be offset by $1.7 billion in savings, reducing overall costs by $520 million a year starting in 2014.

Changes In calculation method

You may be confused by different percentages being publicized regarding the rate increase in the coming weeks.

Because of changing methodologies and changes in the way the benchmark rate is expressed, calculating the exact amount of proposed rate increases has become more difficult.

Due to changes in the regulations, ushered in by the current insurance com-missioner to reduce the appearance of rate increase magnitudes, the so-called pure premium benchmark rate increase is expressed in relation to the rates insurers currently have on file.

That’s not the same, however, as the advisory rates that the Department of Insurance sets every year. This new filing will set new advisory rates.

The last time the benchmark was set was for the start of 2014, when it was $2.56 per $100 of payroll, and the average rates insurers had on file across all classes codes as of July 1 this year was $2.53 per $100 of payroll.

However, because of changes to the way rates are calculated, what was $2.56 per $100 of payroll at the start of this year is actually $2.51 under the new method for calculating rates (hence the 4.4% rate increase above).

The Rating Bureau makes the rate recommendation to the state insurance commissioner, who has the authority to either approve it or reject it and set another benchmark.

The pure premium benchmark rate is purely advisory and insurers use it as a guidepost to set their own rates. They do not have to follow the benchmark rates.

The rating agency has submitted the recommendation to the California Department of Insurance and the insurance commissioner has scheduled a hearing on the proposal for late September.