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Quake-related costs for workers comp decline

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Quake-related costs for workers comp decline

Paying for insured workers compensation losses from future California earthquakes requires setting aside about $180 million annually, according to research released last week by the California Workers' Compensation Insurance Rating Bureau.

In contrast, a 2002 study prepared for the San Francisco-based WCIRB found that insurers needed to collect $418 million annually to pay for earthquake-related injuries in the future.

The updated study evaluates potential quake-related workers comp costs since California adopted workers comp reforms in 2003 and 2004.

Excess workers comp insurers are pricing risks for future earthquake losses in California accounts because they are concerned about potential catastrophic losses impacting a concentration of employees, said Kevin Orphan, senior associate in San Francisco for Integro Insurance Brokers Ltd. Services.

In other parts of the country, such as in New York, workers comp insurers are more concerned about the potential for terrorism to impact concentrations of employees rather than temblors, several sources agree.

It remains unclear, though, whether all primary insurers in California are pricing for their share of the state's earthquake risk, particularly with a competitive and softening market where losses remain low, observers say.

Some workers comp insurers are pricing for earthquake exposure while others may not be, said Steve Paulin, senior vp for brokerage SullivanCurtisMonroe Insurance Services L.L.C. in Irvine, Calif.

"There are definitely carriers that still consider that part of their underwriting criteria and others that really haven't given it that much consideration," Mr. Paulin said.

The WCIRB sought a 1.8% pure premium load for earthquake losses for 2004 rates. The California Department of Insurance, however, did not approve the load and the WCIRB never renewed its attempt to include the potential losses in its pure premium rate recommendations.

The WCIRB report released last week is entirely for informational purposes, a WCIRB spokesman said. The WCIRB does not plan to include the potential losses in its recommendations.

Catastrophe modeling and consulting company EQECAT Inc. conducted the study and made its determination by evaluating databases containing information on 15.6 million workers across California.

The database information, culled from sources such as the U.S. Department of Labor's Bureau of Labor Statistics, included job classifications and the shifts worked by the group.

Oakland, Calif.-based EQECAT's study also considered the types of buildings across the state, the structures' potential for damage, the injuries and deaths expected from such buildings, and anticipated workers comp payouts for various injuries.

The probabilistic analysis then calculated the sum of a number of events, such as those likely to occur once every two years, once every 50 years and once every 200 years. Some events would cause millions of dollars in losses while others would reach into the billions.

Boca Raton, Fla.-based NCCI Holdings Inc. a few years ago consulted EQECAT to help it determine potential workers comp losses in several states including Alaska, Hawaii and Missouri, an NCCI spokesman said.

NCCI, which is the licensed rating and statistical organization for more than 30 states, currently includes loss cost provisions for earthquake risks in several of those states, the spokesman added.