The Workers’ Compensation Insurance Rating Bureau of California yesterday made its case to the Department of Insurance for a 5.2 percent pure premium rate increase. The Bureau’s revised filing is one percentage point more than its original submission in September, an increase necessitated by Governor Schwarzenegger’s endorsement of AB 338. If Insurance Commission Steve Poizner approves the filing for advisory rates on Jan. 1, 2008, it’ll be the first increase since July 2003 and perhaps a portent of things to come. Poizner was unable to attend the rate hearing due to the Insurance Department’s in working with policyholders and insurers dealing with the raging Southern California fires. That left Chris Citko, CDI senior staff counsel, running the meeting.
The Bureau’s original filing proposed a 4.2 percent increase contingent upon the governor not signing AB 338. The new law, which affects workers injured on or after Jan. 1, 2008, increases the window during which injured workers may use their temporary disability benefits from two years from the date of the first benefit payment to five years from date of injury. Schwarzenegger signed the bill into law earlier this month. According to Dave Bellusci, chief actuary for the Bureau, this change will eliminate about one third of the TD savings realized from SB 899.
Despite the signing of AB 338, the greatest factor in the Bureau’s proposed increase was the affects of loss adjustment expenses – that is the costs associated with adjusting claims. Loss adjustment expenses have not decreased commensurate with the decline in losses from accident years 2003 through 2006. This factor accounts for 3.5 percentage points of the proposed increase. As for reasons that the LAE are not declining, Bellusci points to new medical utilization review procedures, legal challenges to regulations and legislation, and challenges to the Permanent Disability Rating Schedule that are likely increasing the cost of administering claims.
“To the extent that there will be reduced litigation, we haven’t seen it yet. Maybe when the smoke clears from the reforms, we’ll see a decline in loss adjustment expenses,” Bellusci said at yesterday’s hearing.
Bellusci also informed the Department that the data submitted by AIG and Virginia Surety Insurance Company are included in the rate filing. AIG and Virginia Surety’s data were excluded from the July rate filing because of data inaccuracies and anomalies respectively, but they have since remedied the deficiencies. However, the data of Arch Insurance Company were excluded because of data anomalies. Arch has less than one percent of the market share in California.
Next year’s rate is now in the hands of Poizner, who must either accept the filing or reject and order a different rate change in either direction. Insurers, however, are not required to use the pure premium rate and may price policies as they see fit. For a copy of the revised rate filing, please click here.