Bragging Rights

"The fish REALLY was THAT big!"

In perhaps the biggest news of the year in California workers' compensation is the real possibility that the Workers' Compensation Insurance Rating Bureau may ultimately recommend a near double digit mid-year rate decrease.

If this occurs this would be the first mid-year filing since 2012 and the first recommended decrease since 2007.

In 2012, the WCIRB recommended a 9.1% increase in the advisory pure premium rates effective July 1.

In 2007, the Rating Bureau recommended an 11.3% rate reduction in the middle of the year.

Mid-year filings are important to the insurance industry because they have been a consistent barometer of where the market is going. In most years, when the WCIRB submitted a mid-year filing the recommended change has been close to what gets recommended in the WCIRB's subsequent annual filing.

What's holding up any recommendation at this point is finalization by actuaries of certain loss adjustment expenses.

Giovanni A. Muzzarelli, a senior casualty actuary for the Insurance Department, told WorkCompCentral Monday the loss-adjustment expense methodology pointed to an approximate 5% increase in those costs.

But taken against the 13% decrease indicated by trends on benefit costs, and accounting for the fact that loss adjustment expenses are not a direct one-to-one offset against benefit trends, "it sounds like it's ending up minus 10-ish," Muzzarelli said.

Dave Bellusci, WCIRB executive vice president and chief actuary, would not speculate on how the Governing Committee would actually vote; a vote on whether to submit a mid-year filing for 2015 when members meet today at 9:30 a.m. in Oakland, CA.

So far, here's what the numbers are reflecting:

Allocated loss-adjustment expenses, costs that can be attributed to a specific claim, increased 12.1% from 2013 to 2014.

In 2014, carriers paid $886 in ALAE per indemnity claim at the 12-month valuation point, up from $790 in 2013. The WCIRB speculates that this increase experience is related to the Workers' Compensation Appeals Board decision in Dubon I, which provided an invalidation path on independent medical reviews. Dubon II closed that hole, but issued too late in 2014 to affect the numbers.

"In addition to IMR, we saw a big spike in expedited hearings and prior to Dubon II, there were challenges to the expedited hearing," Bellusci said. "So you had this dual-track, you had to go to IMR, but you're also paying lawyers to attend the expedited hearing."
The Rating Bureau is projecting from 2013 to 2014, estimated ultimate ALAE per indemnity claim will increase 12.3%, following a 5.7% increase from 2012 to 2013.

The WCIRB is projecting the ultimate ALAE per indemnity claim will account for 19.6% of losses for policies incepting on or after July 1, 2015. The Jan. 1, 2015, pure premium rate filing projected an ALAE-to-loss ratio of 15.4%.

Unallocated expenses, those costs that are not directly attributable to specific claims, such as office rent and overhead, is now projected to be 6.5% of losses for policies incepting July 1, 2015, compared to the 5.5% ratio projected in the Jan. 1 filing.

Paid medical cost containment per open indemnity claim increased 4.7% in 2013 to $1,019 from $973 in 2012, consistent with the Rating Bureau's severity trend that assumes a 5% annual increase.

Of course, California is an open market, and carriers can rate as they please, and rates don't necessarily translate to net paid premium, which has a host of other factors more personal to an employer's actual experience.

But this news certainly gives SB 863 proponents something to brag about.