SACRAMENTO, Calif. March 19 (BestWire) — California's Workers' Compensation Insurance Rating Bureau will file for a nearly 25% increase in pure premium rates, based on new loss data and the potential impact of recent legal decisions.

If the full 24.4% increase for the benchmark rate, scheduled to be filed March 27, is approved by the state Department of Insurance, the rates, effective July 1, will remain on average 54% lower than the approved pure premium rates in effect July 1, 2003, according to WCIRB data.

In response, Insurance Commissioner Steve Poizner said he will hold a public hearing to investigate the surge in medical costs in the state's workers' compensation system. Poizner also said he is concerned about the level of quality in data provided by the WCIRB and that his office is conducting a "top-down" review of its operations, due in June.

"I will give this WCIRB recommendation the same level of careful scrutiny I have given previous requests. I will not allow California’s job creators to be burdened with unnecessarily high workers’ compensation costs," Poizner said in a statement. "These soaring costs are unsustainable and must be controlled if we are to prevent a repeat of the workers’ compensation crisis we saw earlier this decade."

Late last year, Poizner rejected a 16% increase proposed by the state WCIRB for the advisory pure premium rate, the nonbinding standard for determining workers' comp rates. He set a benchmark of a 5% increase to account for higher medical and claims adjustment costs (BestWire, Oct. 28, 2008). Unlike its authority over homeowners and automobile insurance rates, the insurance department does not have prior approval over workers' comp rates. The commissioner does have the authority to review rate filings he deems excessive.

The WCIRB files rate recommendations every six months, with new rates going into effective on Jan. 1 and July 1 of each year.

The rating bureau said a recent evaluation of loss experience determined an increase in the claims cost benchmark of 17.6%, primarily due to higher medical costs. The need for an additional increase was projected from three recent Workers' Compensation Appeals Board decisions: Ogilvie vs. City and County of San Francisco, Almaraz vs. Environmental Recovery Services and Guzman vs. Milpitas Unified School District.

These cases affected payments for permanent disability awards and could have far-reaching impacts, according to the Workers' Compensation Action Network, an alliance of business and insurance interests. Prior to the legislative reforms passed in 2004, permanent disability cases were filed in California at three times the national average and accounted for 82% of all benefit costs in the system, according to the network.

Nicole Mahrt, Director of Public Affairs, Western Region, for the American Insurance Association said the rulings, which will be appealed, could undermine earlier efforts to improve the market. "We need to continue to protect those reforms," she said.

In 2007, the top five writers of workers' compensation insurance in California, according to A.M. Best Co. state/line data, were: State Compensation Insurance Fund, with a 26.4% market share; American International Group Inc., with 8%; Berkshire Hathaway Insurance Group, with 7.5%; Liberty Mutual Insurance Co., with 5.9%; and Zurich Financial Services Group, with 4.7%.
(By Sean P. Carr, senior associate editor, BestWeek: Sean.Carr@ambest.com) BN-NJ-03-19-2009 1646 ET #

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