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Agency recommends 16 percent increase in workers’ comp rates

CALIFORNIA – The agency responsible for recommending changes in workers’ comp rates submitted its third and largest attempt to raise premiums since 2003, asking the commissioner to approve a 16 percent increase.

“We’ve known this was coming for some time. If you look at the history of workers’ comp it always goes this way. It goes up. It goes down. The thing is, you just don’t know when it will happen,” said Ed Kempkey, president of Kempkey Insurance Services in Napa.

“Even if it’s not approved, clearly the bureau is giving signs there is a change on the way.”

Twice in the past year the Workers’ Compensation Insurance Rating Bureau advised Insurance Commissioner Steve Poizner to approve a pure premium rate hike, but in both cases they were denied.

Mr. Poizner instead recommended no change to rates after a suggested 4.2 percent increase last October, which was later increased to 5.2 percent. Carriers also ignored the bureau’s filing, submitting for decreases even before the commissioner’s announcement.

“I am pleased that stability in the workers’ compensation insurance marketplace has eliminated the immediate need for a pure premium rate change,” Commissioner Poizner said in May of his decision not to recommend any change.

The bureau’s recent announcement would affect rates beginning Jan. 1, 2009, and a spokesperson for the Department of Insurance said the commissioner would not announce his decision until the Sept. 16 public hearing.

“I think some carriers will take an increase and some won’t. … The economy is not robust enough right now to accept a 16 percent increase,” said Casey Roberts, commercial sales manager for Northwest Insurance Agency Inc. of Santa Rosa.

“But you can only decrease rates so far before losses start to catch up with you, and if you look at health insurance premiums they are still going up.”

The bureau attributed the need for an increase mostly to the escalating cost of health care but also to an increase in loss adjustment expenses. On average, losses increased from $6.5 billion in 2006 to $6.7 billion in 2007, which was the first increase since the reforms.

Officials also expect claims to increase as a result of recent legislation that relaxed some of the reform measures passed during the workers’ comp crisis, but it is unclear when those will have a fiscal effect.

Bureau actuaries who calculate the rates according to insurer loss experiences estimate the legislation could add up to as much as $71 million more in temporary benefits payments.

The 2004 reform was the result of repeated rate increases that hit a record $6.47 per $100 of payroll in 2003, forcing more than two dozen carriers out of the market. The state passed a reform package aimed at reducing claims and incentivizing return to work in 2004, sending the premiums on a downward spiral. The most recent estimates put the rate at about $2.37 per $100 of payroll.

Changes recommended by the bureau and the insurance commissioner are advisory and insurers are not required to follow their suggestions. The numbers are used more as a benchmark for insurers to set their rates.