Insurance Commissioner Dave Jones adopted and issued a revised advisory pure premium rate, lowering the benchmark to $2.46 per $100 of payroll for workers’ compensation insurance, effective July 1, 2015. 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.

The commissioner’s pure premium decision is advisory only. Under California law, the commissioner does not set or have authority to reject workers’ compensation insurance rates. The commissioner’s advisory pure premium rate is not predictive of what an individual insurance company may charge its policyholders because the review of pure premium rates is just one component of insurance pricing.

The purpose of the pure premium benchmark rate process is to review costs in the workers’ compensation insurance system and to confirm that rates filed by insurance companies are adequate to cover benefits for injured workers.

The mid-year pure premium rate benchmark of $2.46 per $100 of payroll is a 10.2 percent reduction in the current benchmark and 5 percent lower than the average industry-filed pure premium rate as of January 1, 2015, which was $2.59 per $100 of payroll.