Thursday, September 12, 2013

CA's New Rate Filing Reflects Uncertainty

The political grandstanding that is typical this time of year when the California Workers' Compensation Insurance Rating Bureau publishes is pure premium rate request should be boisterous.

The WCIRB's Governing Committee yesterday voted unanimously to approve a 2014 advisory pure premium rate of $2.70 per $100 of payroll.

This is 3% more than the $2.62 rate the committee approved in August and is 6.9% higher than the average insurer filed rate of $2.53.

And even then rates may be inadequate to cover loss developments according to members.

The combined ratio remains well north of 100%.

Much of the uncertainty stems from the pending conversion to the Resource Based Relative Value Scale for physician reimbursement.

Estimates on the impact of the conversion range from no impact to an increase of up to several hundred million dollars.

The reason for the vagueness is that there are codes in the current system that have not yet been "cross talked" to the RVRBS.

Adding to the complexity is that for unknown reasons claim frequency has been climbing.

Increased frequency and medical loss-cost development that was observed in data collected through the end of June accounts for more than two-thirds of the proposed rate increase. (About 2% of the increase for 2014 is attributed to higher permanent disability benefits.)

Some suspect this is due to resolution of complex older claims that had been languishing because of Medicare set-aside requirements as well as the nature of the injuries.

Since complex claims mostly involve medical issues it’s possible that the increased settlement rates on older claims could be driving up the medical loss development from previous years.

But old complex claims doesn't account for all of the increase.

Claim filings spiked throughout the country in 2010. But claims have decreased in other states. In California though, 2011 was flat, and increased about 3% in 2012. The Rating Bureau is currently projecting a 6% increase in claim frequency for 2013.

Executive vice president and chief operating officer for the WCIRB, Dave Bellusci, called the 6% projection "a little bit alarming.”

I think that's an understatement.

Frequency drivers are going to be the subject of further study.

The WCIRB plans to submit the 2014 rate recommendation to the state Department of Insurance by the end of the week. And I'm sure Insurance Commissioner Dave Jones will thunder from the pulpit about excess rates. We've been down this road many times.

There are so many variables in play right now in California that the ability of the actuaries to come up with any projection amazes me. Lien litigation, RVRBS, frequency drivers, permanent disability changes, supplemental fund, clean up legislation, pro sport exemptions - the list goes on and on.

And of course the WCIRB rate is only a recommendation. The California market continues to be very competitive. There is no shortage of capacity in the market right now.

With a growing economy, albeit slowly, payroll expansion is going to move premium faster than rate increases.

Still, the temptation will be to make some changes and this temptation needs to be resisted. It's time for the system to settle down. The last 10 years have been tumultuous for employers trying to pin down their workers' compensation budgets. It's been damned near impossible.

SB 899, legal challenges, regulatory moves, SB 863, more regulatory moves and legal challenges - and in the meantime the employer community is trying to figure out whether or not more people can be hired or where automation and technology can be implemented to minimize risk and fluctuation.

I pointed out yesterday how complex just getting a medical-legal evaluation is in California, prompting the Division of Workers' Compensation to publish an educational webinar on the topic in a few weeks.

Complex systems take time to mature - people need to adjust their own routines and systems for efficient operations. In time, assuming no more changes, we can have a baseline operating standard and then true efficiency can be measured.

So while comparing rate per payroll is a measure of employer cost year over year, those comparisons aren't particularly useful to the financial officer writing the premium check at the employer's offices.

The challenge over time will be to resist the temptation to make changes and let the past 10 years settle into a routine.

But workers' compensation is historically a political football. New people come into town without adequate perspective of the past and their own ideas on how to make things work.

If California wants a stable workers' compensation market and system, things need to be left alone for a while - even in the face of adverse (depending on perspective of course) judicial rulings ... which will surely occur over time.

So ignore the political grandstanding that is quite likely to occur. Carriers are writing, there's good competition, and let the claims experience settle down a bit.

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