Rate Filings Show CA Working As Well As It Can

Market hardening in California presages business anxiety making a perfect political climate to pass some reform either this year or next.

The state's Department of Insurance (DOI) released rate filings and a total of 56 carriers averaged increases of 10.8% in their pure premium filings.

Zurich American Insurance Co., which filed for an 8.3% increase in pure premiums in June, is the largest carrier to file for an increase with $227.6 million in written premium in 2011. It was the 6th largest carrier with a 2.9% share of the market.

The State Fund with nearly $1 billion in written premium and a 12.9% share of the market sought no change to its rates.

Most all carriers came in around the DOI's approved advisory pure premium rate increase of 8.26%.

There were some small carriers that filed increases in excess of 18%:

Castlepoint, the 26th largest carrier, with $81.8 million in written premium, in 2011 filed for an 18.1% increase.

Amguard, which had $24.4 million in premium in 2011 filed for a 20.5% increase, while Vanline, which wrote $8 million in premium last year, filed for a 23.3% increase.

HDI Gerling America Insurance Co., which reported $635,652 in written premium last year, filed for a 46% increase, the highest submitted in the past two months.

The DOI's figures don't take into account the market share of the carriers relative to weighting rate increases. Honestly I don't have the time to do this either.

But if The State Fund's 12.9% market share were to factor into the overall industry rate increases I suspect that the true average increase would be closer to 5% overall for the industry.

Which is why the DOI's rate publication needs to be read carefully - there are outliers which greatly distort the actual market impact of rate increases.

And rate increases don't tell the real story about the health of the market, whether it is hardening or softening, and whether any particular sector of the industry is disproportionately impacted.

Reform supporters will rally around the DOI rate publication for the proposition that the California workers' compensation system needs fixing to reduce costs because carrier's rates have increased nearly 10%, even though that statement is not accurate if weighting is to be included.

In addition, the reform debate in California is focused on liens and photocopy services as the cost centers upon which carriers will see savings so that an increase in permanent disability indemnity can be implemented without an increase in rates.

That argument isn't logical either because rates are going up regardless of any cost savings versus permanent disability offset.

I think what is most telling is that the state's single largest carrier with nearly 13% of the market is keeping rates level. That tells me that management of The State Fund feels confident they are adequately priced and reserved and that the underlying cost structures are being managed efficiently - in other words that the state's system is working as well as it can under the circumstances.

Is there a need for reform? Not if you're The State Fund. Everyone else in the system probably has a different reason for reform though.