California Commissioner OKs 10.2% Drop in Workers’ Comp Advisory Rates

Insurance Commissioner Dave Jones on May 7, 2015 adopted and issued a revised advisory pure premium rate, lowering the advisory pure premium rate benchmark to $2.46 per $100 of payroll for workers’ compensation insurance, effective July 1, 2015. The approved pure premium rates are, on average, 5.0% less than the industry average filed pure premium rate as of January 1, 2015 of $2.59 and 10.2% less than the average of the approved January 1, 2015 advisory pure premium rates of $2.74.

The commissioner adopted the recommendation of the Workers’ Compensation Insurance Rating Bureau (WCIRB), which filed a recommendation to lower the advisory pure premium rate mid-year. Mid-year pure premium rate adjustments are not the norm-new data reflecting a significant change in underlying workers’ compensation costs is required before the commissioner will issue a mid-year adjustment.

Jones issued the mid-year advisory pure premium rate one week after a public hearing and careful review of the testimony and evidence submitted. The commissioner reduced the advisory pure premium rate mid-year, based on insurers’ cost data indicating that in 2014 there was a reduction in workers’ compensation insurers’ medical costs. The reductions in medical costs appear to be the result of SB 863 (De León), signed in 2012. The WCIRB noted that not all of the cost reductions projected from SB 863 have materialized. Other costs continue to rise, but those increases were offset by the reduction in medical costs.

The WCIRB’s pure premium advisory rate filing demonstrated that workers’ compensation insurers continue to charge premiums that are close to the estimated cost of providing benefits and adjusting expenses. The rates actually charged to employers, however, are on average lower than the rates filed by insurers. Workers’ compensation insurance rates are not set by the Department of Insurance. Under California law, workers’ compensation insurers set their own rates. The WCIRB will evaluate workers’ compensation insurance costs again in the fall of this year when it files its 2016 pure premium rate benchmark recommendation with the Department of Insurance. That filing will provide an opportunity to assess whether medical costs continue to be lower and what changes, if any, there are in other costs in the system.

Source: California Department of Insurance

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