The workers’ compensation insurance system in California is over 100 years old. More than 220 insurance companies provide workers’ compensation insurance coverage to nearly 700,000 employers and deliver medical and wage replacement benefits to almost 800,000 injured workers and their families annually.

The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) is the licensed rating organization for workers’ compensation and is the California Insurance Commissioner’s designated statistical agent. As such, the WCIRB monitors the health of the workers’ compensation insurance system and makes its data and analysis available to system stakeholders and public policymakers.

The WCIRB has released its 2016 State of the California Workers’ Compensation Insurance System (Report). The Report highlights the cost of California workers’ compensation insurance based on premiums paid by insured employers, shows how premium dollars are distributed among various system components, and details cost drivers in the system. The Report also contains a brief summary of how post-Senate Bill No. 863 (2012) costs are emerging compared to initial projections.

Principal findings of the Report include:

1) Growth in California written premiums has slowed compared to that of prior years as insurer rate increases have moderated, while economic expansion has contributed to increased employer payrolls.

2) California’s insurance rates, which are on average the highest in the country, are largely driven by the greatest frequency of permanent disability claims in the country, high medical costs per claim propelled by a protracted pattern of medical treatments, and much higher-than-average costs of handling claims and delivering benefits.

3) Recent increases in indemnity claim frequency that are counter to trends in other states are largely driven by increases in the Los Angeles Basin area. After adjusting for regional differences in wage levels and industrial composition, indemnity claim frequency in the Los Angeles Basin area was over 30% higher than the statewide average. Comparatively, indemnity claim frequency in the Bay Area was approximately 15% lower.

4) Despite provisions of SB 863, which intended to reduce frictional costs, average allocated loss adjustment expenses in California have increased by 24% since 2012. Within California, average allocated loss adjustment expense costs are over 20% higher in the Los Angeles Basin area compared to the remainder of the state and is the highest ratio of loss adjustment expenses to losses in the country at almost twice the countrywide median.

5) While the difference between California medical costs and medical costs in other states has moderated with recent declines in California average medical severities since 2010, the average California medical benefit per claim remains among the highest in the country with costs more than 60% above the countrywide median.

6) Since enacting SB 863, savings in medical costs resulting from the new physician fee schedule, resource-based relative value scale (RBRVS) physician fee schedule, independent medical review (IMR), and other provisions have more than offset higher-than-projected allocated loss adjustment expenses, resulting in greater overall cost savings than initially forecast.

The Report authors will conduct a live webinar on August 8, 2016 from 10 to 11 am PT to discuss these findings and answer questions. Registration information is online. The webinar is free and open to the public.

For those unable to attend the live webinar, a recording will be posted in the Research and Analysis section of the WCIRB website following the event.

The full Report is available in the Research and Analysis section of the WCIRB website.