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California workers comp rate cuts ordered

Posted On: May. 30, 2018 10:59 AM CST

California workers comp rate cuts ordered

California Insurance Commissioner Dave Jones on Tuesday accused workers compensation insurers of not passing cost savings to employers, who are not seeing equivalent premium savings.

In response, Mr. Jones adopted and issued a revised workers compensation insurance advisory pure premium rate, lowering the benchmark to $1.74 per $100 of payroll for workers compensation insurance, effective July 1.

The order sets the advisory pure premium rate below the $1.80 average rate recommended by the Workers’ Compensation Insurance Rating Bureau in its filing for 2018. Mr. Jones issued the advisory rate after a public hearing and “careful review of the testimony and evidence submitted by stakeholders,” according to a statement. The pure premium benchmark rate is only advisory, as the California Legislature has not given the insurance commissioner authority over insurance rates.

Mr. Jones has reduced the benchmark rate by 36.5% since January 2015, when the average pure premium rate was $2.74 per $100 of payroll, according to the statement.

With an average filed pure premium rate of $2.22 per $100 of payroll as of Jan. 1, 2018, insurers are on average applying pure premium rates that are 27.6% more than the indicated pure premium rate approved by the commissioner on Tuesday. Even after considering the industry’s extensive use of rating plan credits, industry profitability appears to be substantial as a percentage of premium, according to the commissioner’s office.

“It is time insurers do the right thing and pass along more cost savings to California employers who deserve to share in the benefits cost reductions have brought to the workers compensation system,” said Mr. Jones in the statement. “In addition to the cost reductions that have led to higher profits, insurers are also benefitting from the federal income tax break, which should result on average in about another five percent decrease in premiums.”