Workers’ Comp Rates-“Up, Up and Away?”

We have noticed a definite trend in 2010 of rates heading back up from the historic lows of the last 3–4 years. At this point, the rate of increase is fairly modest; depending on class code, 5%–10% is typical.

So what’s up with that?

The pure rates increased on Jan 1, 2010 by an overall factor of 6%. “Pure rates” are the actuarial rates compiled by the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) from claims cost data of all California employers in all payroll classifications.

In a time of economic recession, the State of California could expect strenuous opposition to raising insurance on struggling businesses.” Consequently, the approved increases in the pure rates have been substantially muted.

Knowledgeable claims professionals are seeing some potentially ominous trends, mainly from recent court cases that would dilute much of the benefit of the 2004 reforms that have been so beneficial to the California employer.

The WCIRB recently filed for a 29.6% rate increase, the biggest ever recommended. This recommendation is driven by prospective increases in medical costs and the damaging impact of court decisions on litigation costs and permanent disability costs.

All in all, rate increases thus far have been modest. Furthermore, in most cases they remain at only half of the rates in all class codes of 2003 and 2004.

In tracking the history of many of our clients going back to the early ‘90s, we can see clients paying less today than they did for Workers’ Comp in 1994! This is not meant as solace for the future, only to provide context and a historical perspective.

The other advantage we have over the early part of this decade is a highly competitive market. Dozens of insurance companies still want to play ball in California. In 2004, the market share of the State Fund was over 50%, because so many companies had gone bust or decided to leave the California market.

The market share of the State Fund is now in the low 20%, and options are still plentiful. No time for panic just yet, but vigilance is recommended.