live entertainment: State of CA Workers Compensation: Commissioners Rate Increase ...

Material copyright 2012 Workers Comp Executive, Wednesday, May 30, 2012.

As we approach the half-way point of 2012, California Insurance Commissioner Dave Jones, has approved an 8.3% increase mid-year for California Employers. This increase comes after a 37% approved increase from the commissioner in January. Combined with the earlier increase, policies renewing on or after July 1, 2012 may be affected by the combined approved rate increase of 45.3%. Please know that the Insurance Commissioner?s rate increase approval is a ?recommended approval? and each carrier has the ability to file and use their own rates. As carriers have the ability to file their own rates and competition does remain, we have yet to see how carriers will react to the most recent rate approval/recommendation. We will continue to monitor this situation to see how this new decision actually translates at July 1st renewals and after.

To explain how the commissioner got to this decision; he came out with the following statement; ?The primary increase in California?s workers? compensation costs is with medical costs,? Jones says in his decision. ?Per unit medical costs do not appear to be increasing much, but medical utilization appears to be the main driver of overall cost increases.? Jones also went on to say, ?If cost containment tools are not working and costing more than they benefit, we need to know why. I expect the WCIRB to provide further information in the next claims cost benchmark filing that will assist in this analysis as it obtains and evaluates medical cost containment expense data.?

Jones also reiterated an earlier call for a balanced approach to workers? comp reforms. He maintains that any benefit increases for injured workers need to be offset with systematic savings in the form of lower frictional costs and a reduction of medical cost drivers in the system.

What does the rate increase apply to?
The approved increases are for what are called Pure Premium Rates. Pure premium rates are advisory and insurers are free to file and use their own rates. Many, however, typically follow the advisory. Pure Premium rates do not include insurance company?s administration, profits, taxes or other various factors of doing business. For your review we have provided an explanation of pure premium rates verses insurer?s base rates.

As we mentioned, the approved increase will be evaluated by each individual carrier to determine if they will decide to further increase their base rates in specific class codes. The class codes that have performed better will most likely be the least affected and those that have performed poorly will have larger increases.

How will the underwriter calculate my premium?
During an insurance company underwriter?s evaluation of a Workers Compensation submission a variety of individual account factors are looked at, including; the employer?s losses, implemented controls, incentive programs, hiring/firing practices, and more. After reviewing all information, the underwriter may apply various credit, debit and/or discount factors to their base rates. Experience Modification factors that apply to each individual employer are also applied. The final result is the desired premium that the company underwriter determines necessary to profitably write the account, while hopefully remaining competitive with other insurers in the market place.

Employer?s that have had favorable claims experience and have implemented Loss Control/Safety Programs will be best positioned.

How can you, as an employer, position yourself for the best rates?
It is important for you to be proactive in your loss control program along with your broker and carrier. The lower your losses, the better position you are in, when reviewed by insurance company underwriter.

It is also important that you are partnering with a broker that specializes in your industry so that they understand how to help you address and implement the right risk management procedures.

Be sure you are aligned with a broker that has the following strengths and programs available:
- Access to all markets
- Claims Consulting & Risk Management Services
- Medical Cost Containment on 1st Aid claims
- 24/7 Triage Services when applicable
- Risk Management Programs online to enhance your corporate policies
- Wellness Programs

Are there any other options out there?
For larger employers, it is possible to look at various alternative programs, such as captives, large deductibles and Retrospective policies. Before moving into any risk sharing program however, you should discuss with a qualified broker who has experience with these programs as there are potential financial risks/exposures that you need to be aware of, and comfortable with.

Contact us for more information on how you can protect yourself, and learn more about what your alternative options may be. You can reach Melani Conti or Steve Parkhurst at 800.234.6787. Also, feel free to visit our website at www.heffins.com.