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Frictional costs in California’s workers compensation system dropped recent years, but expenses are still nearly twice as high as the median state in the latest analysis by the Workers’ Compensation Insurance Rating Bureau of California.
It costs 48 cents to deliver $1 of benefits in California, down from earlier assessments of 50 cents but still nearly double the 25 cents it costs to deliver the same benefits in the median workers comp systems nationwide, WCIRB Vice President and Actuary Tony Milano said during a webinar Wednesday.
Mr. Milano said the WCIRB has identified key drivers that explain why California remains an outlier.
“They’re the high volume of permanent disability claims, a higher proportion of cumulative trauma claims in California, we have a longer average claim duration and just within the state there are significant differences regionally,” he said.
Permanent disability claims are more complex and involve more disputes, which drives up frictional costs and allocated loss adjustment expenses compared to claims that result only in temporary disability, according to the WCIRB.
California has the highest proportion of permanent disability claims among workers comp systems throughout the country. The 639 PD claims per 100,000 employees in California in 2021 — an improvement from 774 per 100,000 employees in 2015 — is more than double the median of 256.
More than 80% of permanent partial disability claims involve so-called “non-trivial” amounts of allocated loss adjustment expenses, which the WCIRB defines as $1,000 or more.
Cumulative trauma claims, which appear to be more prevalent in California than other jurisdictions, can also drive frictional costs. Cumulative trauma claims tend to involve disputes over issues such as compensability and, as a result, involve more frictional costs than other claims, according to Mr. Milano.
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