Commissioner Jones asks workers’ compensation insurers to reduce rates for employers after finding costs declining
News: 2016 Press Release
The commissioner has the authority to regulate auto, home and property insurance rates and has saved consumers and businesses $2.6 billion in rates by rejecting excessive rates or rate increases for those lines of insurance, but the Legislature has not given the commissioner the authority to regulate workers' compensation rates, and there is no requirement in state law that workers' compensation insurers pass onto employers any of the savings from SB 863 or any other workers' compensation reform laws that reduced costs in the system.
Instead, for workers' compensation rates the Legislature has limited the commissioner to issuing an advisory workers' compensation rate benchmark known as the pure premium rate benchmark. The pure premium rate reflects the insurers' costs in the workers' compensation system.
In his order setting the advisory pure premium rate, the commissioner asked workers' compensation insurers to reduce their prices for employers accordingly, but noted that the Legislature has not provided him the authority to require insurers to pass on the cost savings.
"Insurers' net costs in the workers' compensation system continue to decline as a result of SB 863 and other reform laws enacted by the Legislature and Governor Brown, which is good news," said Insurance Commissioner Dave Jones. "Workers' compensation insurers should pass these cost savings onto employers, but there is no legal requirement that they do so, and workers' compensation insurers continue to file pure premium rates that are higher than the pure premium rate warranted by their costs."
The Workers' Compensation Insurance Rating Bureau's (WCIRB) pure premium advisory rate filing for January 1, 2017, which includes insurers' experience data up to June 30, 2016, demonstrated that insurers continue to file pure premium rates that are higher than the projected cost of providing benefits and adjusting expenses. After reviewing the data filed by the WCIRB as well as testimony and information submitted by the public as a part of the public hearing held on the pure premium rate filing, the California Department of Insurance's review of the California workers' compensation insurance industry's costs concluded that insurers' filed pure premium rates are higher than needed to cover insures claims costs and claims handling expenses. The commissioner adopted this finding in his order.
This most recent pure premium advisory rate issued by the commissioner follows the pure premium benchmark rate he approved in May of this year, which was effective July 1, 2016, of $2.30 per $100 of payroll, which was 10.5 percent lower than the insurers' filed pure premium rates at that time. This most recent determination to lower the advisory pure premium rate benchmark is the fourth time since January 1, 2015, that the commissioner has found that costs are declining but that insurers filed pure premium rates are higher than the pure premium benchmark rate adopted by the commissioner.
The commissioner's newly issued pure premium rate includes projected savings as a result of recent anti-fraud legislation in SB 1160 and AB 1244, which limit the ability of medical and other service providers indicted or convicted of fraud in the workers' compensation system to pursue liens against insurers for alleged failure to reimburse medical expenditures incurred by the indicated or convicted medical or other services providers.
- The commissioner's pure premium decision is advisory only. Under California law, the commissioner does not set or have authority to reject workers' compensation insurance rates unless the rates are inadequate, would tend to create a monopoly or are unfairly discriminatory. The commissioner's advisory pure premium rate is not predictive of what an individual insurance company may charge its policyholders because the review of pure premium rates is just one component of insurance pricing.
- The purpose of the pure premium benchmark rate process is to review costs in the workers' compensation insurance system and to confirm that rates filed by insurance companies are adequate to cover benefits for injured workers. The pure premium benchmark also tells workers' compensation insurers, employers and other stakeholders what the costs are in the workers' compensation system.
- The mid-year pure premium rate benchmark of $2.30 per $100 is 10.5 percent lower than the average industry-filed pure premium rate as of January 1, 2016, which was $2.57 per $100 of payroll.
The California Department of Insurance, established in 1868, is the largest consumer protection agency in California. Insurers collect $289 billion in premiums annually in California. Since 2011 the California Department of Insurance received more than 1,000,000 calls from consumers and helped recover over $394 million in claims and premiums. Please visit the Department of Insurance web site at www.insurance.ca.gov. Non-media inquiries should be directed to the Consumer Hotline at 800.927.HELP or 213.897.8921. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.