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Allocated loss adjustment expenses in California increased by 20% since 2012 and five-fold in the last 25 years, according to a report by the Workers' Compensation Insurance Rating Bureau of California.
The ratings agency analyzed allocated loss adjustment expense cost trends in the state, which had the highest costs in the country at more than twice the national median, according to the report released Thursday.
In the numbers for 2015, 70% of ALAE costs went to defense attorney expenses and medical cost containment program costs, along with other components such as deposition, surveillance and investigation, and subpoena preparation costs. The largest chunk — 43% — was spent on lawyers.
Researchers compared California’s numbers to those of other states and found that California ALAE costs are largely related to activities that occur later in the life of a claim.
Researchers also concluded that “liens are a significant driver of total loss adjustment expense costs including ALAE costs” despite state reforms to buck the trend.
California’s 2012 workers compensation reform law, S.B. 863, “included a number of provisions intended to reduce the number of lien filings,” the report states. “Although lien filings dropped in 2013 and 2014, they increased in 2015 and through the first half of 2016. Data from the WCIRB’s recent ALAE claim survey shows that a significant number of liens continue to be filed for more recent accident year claims and these liens are primarily for medical-related issues.”
The agency also found that that cumulative injuries are “much more likely to involve significant ALAE costs than noncumulative injury claims and these types of claims have been growing faster than other types of claims, indicating that the recent growth in cumulative injury claims is likely a key driver of recent increases in ALAE levels,” according to an overview of the report.
The rating agency also surveyed 870 permanent disability claims from accident years 2011 through 2014 to better understand the detailed components underlying reported ALAE costs. It found that 40% involved deposition costs; more than 50% of them went before the Workers’ Compensation Appeals Board; and 90% of them included bill review costs. It also noted that one-third of the cases included surveillance and investigation costs.
Geographically, although a majority of the claims with significant ALAE costs occurred in the Los Angeles area, the upward trend in costs has been noted statewide, the report states.
The Los Angeles region spends the most money in California fighting and closing workers compensation claims, according to a report released by California’s Workers’ Compensation Insurance Rating Bureau.