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California employers could see an average 5% cut to the premiums paid for workers compensation coverage starting in July under a proposal announced Thursday by the state Workers' Compensation Insurance Rating Bureau.
The board cited lower-than-expected medical loss development and indemnity and medical severities for the decision to propose a July 1 average advisory pure premium rate of $2.30 per $100 of payroll, the WCIRB said in a statement. The proposed reduction would be 10.4% lower than the corresponding industry average rate of $2.57 as of Jan. 1 of this year and 5% less than the California Insurance Commissioner's approved average Jan. 1 rate of $2.42.
There are upward cost pressures on the system such as allocated loss adjustment expenses — costs that are assignable to specific claims such as fees paid to outside attorneys, experts and investigators — that are emerging higher than projected in a post-S.B. 863 world and a 91% increase in liens in 2015, according to the release.
S.B. 863, passed by California legislators in September 2012, increased benefits for injured workers as of January 2013 and included a number of changes intended to reduce California comp system costs. Those included an independent review process for medical treatment and billing disputes, fee schedules for home health care, language interpretation and other comp-related services and fees for lien filings.
“Despite increasing costs to administer workers compensation claims, the WCIRB indicates lower medical costs and declining severity warrant a reduction in the average pure premium rate,” Mark Sektnan, president of the Association of California Insurance Companies in Sacramento, which is part of the Property Casualty Insurers Association of America, said in a statement. “This is good news for employers who will see lower average costs and employees who are receiving evidence-based medically appropriate care in California's system.”
“Each time California enacts a major workers compensation reform, it is a gamble that the expected savings will actually materialize,” Mr. Sektnan said. “The (WCIRB) recommendation is evidence that the reforms are being implemented correctly. It is important to protect these reforms and prevent actions that can undermine them such as onerous court decisions that can chip away at cost savings.”
The recommendation must be considered by the commissioner.
California workers compensation reforms passed in 2012 have reduced the state’s comp system costs by 4.1%, or $770 million annually, according to the California Workers’ Compensation Insurance Rating Bureau.