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CA Department of Insurance

Costs to insurers of providing workers’ compensation continue to decline

News: 2016 Press Release

For Release: May 31, 2016
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Costs to insurers of providing workers’ compensation continue to decline
Insurance Commissioner Issues Lower Advisory "Pure Premium" Rate

SACRAMENTO, Calif. — Insurance Commissioner Dave Jones adopted and issued a revised advisory pure premium rate, lowering the benchmark to $2.30 per $100 of payroll for workers' compensation insurance, effective July 1, 2016. This is a 10.5 percent reduction, when compared to the average insurer-filed pure premium rate.

The commissioner adopted the recommendation of the Workers' Compensation Insurance Rating Bureau (WCIRB), which filed a recommendation to lower the advisory pure premium rate mid-year. Mid-year pure premium rate adjustments are not the norm—new data reflecting a significant change in underlying workers' compensation costs is required before the commissioner will issue a mid-year adjustment.

"This is good news for California's business economy," said California Insurance Commissioner Dave Jones. "A reduction in the pure premium rate reflects a reduction in the cost to insurers of providing workers' compensation insurance, which should benefit employers if insurers lower their pricing. Lower costs in the workers' compensation should be passed on to employers."

Jones issued the mid-year advisory pure premium rate two weeks after a public hearing and careful review of the testimony and evidence submitted. The mid-year pure premium advisory rate reduction is based on insurers' cost data indicating workers' compensation insurers' medical costs were lower in 2015.

The reductions in medical costs appear to be the result of SB 863 (De León), signed by Governor Jerry Brown in 2012. The WCIRB noted that not all of the cost reductions projected from SB 863 have materialized. Other costs continue to rise, but those increases were offset by the reduction in medical costs.

The WCIRB's pure premium advisory rate filing demonstrated that workers' compensation insurers continue to charge premiums that are close to the estimated cost of providing benefits and adjusting expenses. The rates actually charged to employers, however, are on average lower than the rates filed by insurers. Workers' compensation insurance rates are not set by the Department of Insurance. Under California law, workers' compensation insurers set their own rates.

The WCIRB will evaluate workers' compensation insurance costs again in the fall of this year when it files its 2017 pure premium rate benchmark recommendation with the Insurance Commissioner. That filing will provide an opportunity to assess whether medical costs continue to decline and what changes, if any, there are in other costs in the system.

Media Notes:

  • 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 $310 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 $469 million in claims and premiums. Please visit the Department of Insurance website at Non-media inquiries should be directed to the Consumer Hotline at 800.927.4357. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.

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