Rate Alert: 37% Workers’ Compensation Rate Increase Approved
Nov 7, 2011
Significant rate increase to impact California Employers in January 2012
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San Diego, CA, November 7, 2011 – After years of declining and/or steady workers’ compensation rates, California employers can expect to see some significant increases in their workers’ compensation premiums starting in January of 2012. On November 4, 2011, Insurance Commissioner Dave Jones approved a claims cost benchmark of $2.30. This is very close to the $2.33 originally submitted by the Workers’ Compensation Insurance Rating Bureau (WCIRB) in September.
The WCIRB initially recommended a rate increase of 39.9%, but Commissioner Jones requested the way the rate is presented to the general public be changed so that it more closely matches the pure premium rates already filed by carriers. The end result is a blended rate slightly below the carrier filed rates which may give an employer the impression of an actual rate decrease. This is certainly not the case. The method by which the pure premium rates are derived has not changed; what has changed is the way these numbers are now presented to the general public.
Ultimately, the benchmark rate is advisory in nature and need not be incorporated into rates being filed by carriers. That being said, most carriers are faced with significantly declining profits related to escalating claims costs and operating expenses. Industry data shows the combined ratio for 2010 at 128%; meaning for every dollar a carrier takes in, they are spending $1.28 in claims and expenses. Given the decline in investment income, it is not surprising to see rates on the rise. Many employers have already experienced increases in their workers’ compensation rates as high as 20% and in some instances, much higher.
The best way to mitigate spikes in premiums is to reduce the experience modifier (ex mod). Employers with a favorable ex mod (less than 1.0) will not only see the benefit of the reduced ex mod when applied to base rates but can be eligible for additional credits offered by carriers. Suggestions for managing and reducing the ex mod are:
- Improved loss control – the best claim is the one that is avoided
- Review of open workers’ compensation claims for reserve accuracy and proper claims management
- Institute a formal return to work program where injured employees have the ability to return to work in a modified capacity
- Hold regularly scheduled safety meetings
- Make employee safety an element of manager and supervisor performance reviews
Another method for reducing workers’ compensation premiums is to consider a loss sensitive program where the employer assumes some of the risk either through a large deductible, retrospective or captive program. These risk financing techniques are not for every employer, but if you have a good safety program and are confident in your ability to control risk, this can be a very favorable way to lower your premiums.
Even with a low experience modifier, employers can expect to see an increase in their base rates for 2012. Work with your broker to explore ways to help tailor your workers’ compensation program to soften the blow of these rate increases through loss control and other risk management techniques.
For more information, please contact your Barney & Barney representative.
