Officials with the Workers’ Compensation Insurance Rating Bureau of California, testifying in support of a recommendation to increase the advisory pure premium rate by 7.6%, said savings from reforms passed nearly a decade ago have run their course.  

But while the benefits from reforms enacted in 2013 and subsequent years are waning, WCIRB officials testifying during the Insurance Department hearing on the rate recommendation Tuesday also noted that average charged rates are at a 50-year-low.  

And even if the insurance commissioner approves the recommended increase, rates for policies incepting on and after Sept. 1 would still be lower than those approved for policies incepting on or after Jan. 1, 2020.  

The WCIRB is recommending that the insurance commissioner adopt an advisory pure premium rate of $1.56 per $100 of payroll, an increase over the current $1.45 adopted for policies incepting on or after Sept. 1, 2021. The commissioner approved a rate of $1.50 per $100 of payroll for policies incepting between January 2021 and September 2021, and a rate of $1.57 for policies incepting in 2020. The average charged rate in 2015 was $2.98 per $100 of payroll.  

“The last decade of major systemic reforms to California’s workers’ compensation system has produced historic cost savings that the WCIRB has chronicled over the years and reported to the Department of Insurance, including cost reductions in pharmaceuticals, in part driven by the dramatic curtailment of opioid prescribing for occupational injuries; the elimination of duplicate payments for surgical hardware; the reduction of provider liens in the system; and crackdowns by the Department of Insurance, the Division of Workers’ Compensation, local district attorneys and others on all forms of fraud, particularly large medical fraud,” WCIRB President Bill Mudge said in his testimony Tuesday.  

California is now in a post-reform period where the savings from the prior decade that contributed to much lower rates are waning in impact or already reflected in recent loss trends, Mr. Mudge said. Medical costs once tempered by the provisions of the reforms are starting to increase, he said, and the impact of the economic reshuffling could drive increases in frequency as new workers in new jobs are at higher risk of being injured than long-tenured vets.  

Wages are currently increasing, and with work comp premiums being calculated as a percentage of payroll, insurers don’t need to charge as much in premiums when payrolls are up. However, Mr. Mudge said economic forecasts don’t expect that wage growth will continue at its current rate.  

“Bottom line, it's a cautionary period for workers’ compensation loss costs and the adequacy of pure premium rates,” he said.  

WCIRB Executive Vice President and Chief Actuary Dave Bellusci said the reforms resulted in 11 consecutive rate cuts and brought the average charged rate to a 50-year-low. But even before the pandemic, the effects were waning and more typical inflationary patterns were starting to emerge.  

Mark Priven, vice president and principal of special projects for Bickmore Actuarial and a consultant to public members of the WCIRB’s Governing Committee, said he would recommend that the commissioner adopt a rate of $1.44 per $100 of payroll, a slight decrease from the current rate. 

Mr. Priven explained that his indicated rate is lower than what the WCIRB is recommending because of different forecasting methodologies. The WCIRB uses adjusted paid losses to calculate medical and indemnity inflation, while Mr. Priven said he uses a mix of paid losses and incurred losses.