The Workers’ Compensation Insurance Rating Bureau’s Governing Committee voted unanimously last week to authorize the WCIRB to submit a Jan. 1, 2014 Advisory Pure Premium Rate Filing to the California Insurance Commissioner. The pure premium rates for the 494 standard classifications proposed to be effective January 1, 2014 average $2.70 per $100 of payroll. This is $0.17, or 6.9%, greater than the corresponding industry average filed pure premium rate of $2. 53 as of July 1, 2013.
The proposed advisory pure premium rates reflect deterioration in the projected cost of losses and loss adjustment expenses of approximately 5.9 % as compared to the WCIRB’s amended January 1, 2013 filing. Below are some of the reasons for the recommended increase.
SB 863 provided for significant increases to permanent partial disability maximum weekly benefits effective January 1, 2014. While policies incepting in 2013 were partially impacted by the January 1, 2014 SB 863 permanent disability benefit increases, the full impact of these increases will be reflected in policy year 2014 cost levels. Almost one-third of the 5.9% deterioration in the indicated pure premium rate level is attributable to the January 1, 2014 SB 863 increases in permanent disability benefits.
In general, for many years, indemnity claim frequency has declined. This decades-long decrease in indemnity claim frequency, which has averaged approximately 3% to 4% per year, is attributable to multiple factors including long-term shifts from heavy manufacturing to a more service-based economy, increased mechanization within industries, and increased employer-sponsored safety efforts. However, in 2010, there was a sharp increase in claim frequency that was partly attributable to a spike in cumulative injury claims in the immediate post-recession environment. Rather than returning to the long-term pattern of decline, indemnity claim frequency in 2011 and 2012 remained high and early indicators for 2013 suggest a further indemnity claim frequency increase.
An increase in cumulative injury claims has been a driver in the recent high level of indemnity claim frequency. Not only does an influx of cumulative injury claims affect indemnity claim frequency, but WCIRB research has indicated that changes in the proportion of indemnity claims involving cumulative injuries is a strong predictor of changes in the number of non-cumulative injury indemnity claims.
The pure premium rates approved by the California Insurance Commissioner are only advisory in that insurers may, and often do, file and use rates other than those approved by the Insurance Commissioner.