Monday, July 23, 2012

A Mixed Bag for California

Private self-insured employers incurred losses of $620 million in 2011, up 4.2% from the amount incurred the previous year, as lost-time claims frequency edged up a fraction and medical-only claims declined slightly, the California Workers' Compensation Institute reported.

Total claims frequency for 2011 dropped slightly to 3.66 per 100 employees from 3.68 in 2010.

More developed data from private insureds' second through fifth reports on 1998 to 2010 claims shows declining claim severity and declining claim volume until 2005, but increasing claim severity since then.

Private self-insured losses are an important barometer of the health of the workers' compensation sector because these are employers that have their own nickel in the game slot. There is no intermediary imposing its own cost or profit issues into the equation. In this case the story is that the high unemployment over the past few years is reflected in lower frequency, but the claims that are being made incur more medical and indemnity costs.

It's a mixed bag, but not entirely negative.

In the meantime the California Employment Development Department reported Friday that employers statewide added 38,300 net new jobs in June with gains in most industries, including construction and professional services.

The increase in jobs helped push California's unemployment rate down in June to 10.7% from May's 10.8%. The state also revised May's jobs figure up, to 45,900 from the initial report of 33,900.

California's job market is growing faster than the nation's — 2% since last June compared to the national rate of 1.4%.

Silicon Valley of course added substantial numbers to the state's economy with Google expanding and Facebook going public, along with other technology companies either growing or starting.

Tourism has rebounded as visitors return to the state's beaches and theme parks. Healthcare continues to advance, even in a sluggish economy. White-collar jobs such as accounting, finance and legal services are starting to return.

Even the long-suffering construction industry is adding jobs as developers rush to build apartment units for a growing population that is not buying single-family houses. The state added 8,100 construction jobs in June.

Since June 2011, the construction sector grew 5%, adding 27,200 jobs. But the industry is still down 400,000 jobs from its peak of 945,100 in 2006.

Still, the fact that higher risk categories are recovering is good news for carriers in the state.

The importance to workers' compensation is of course higher payrolls beget higher premiums which means more money coming into the system that will offset the negative combined ratio that has been reported lately and which has caused a little anxiety over a hardening market.

Still there is a long way to go. California's unemployment rate remains the third-highest in the country, behind Nevada, with 11.6%; and Rhode Island at 10.9%. The national jobless rate is 8.2%.

But California's economy is so large, and its population so big, that it takes time to catch up with the rest of the country.

So, the way I read the current news is that California's self insured businesses are keeping claims frequency in check and those that do get into the system are the more severe claims; and higher rate/risk/premium categories are coming back, which means there's going to be more money coming into the system and staying there.

The only thing missing are decent investment returns, but with the Federal Reserve's continuing pessimism towards economic recovery and view towards long term low interest rates, this part of the equation may not come to fruition for a couple more years.

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