Wednesday, October 24, 2007, 07:53 AM - Understanding the CA WC systemWill the price of California workers' comp insurance begin to rise?
That was the subject of a California Department of Insurance hearing yesterday. The Southern California fires required Insurance Commissioner Steve Poizner's presence. yesterday. But in San Francisco, a scheduled hearing, chaired by senior staff counsel Christopher Citko, went forward to examine the recommendation by the WCIRB (Workers' Compensation Insurance Rating Bureau) that the base price of California workers' comp coverage (the "pure premium rate") be increased by 5.2%.
In this post, I'll recap yesterday's testimony by David Bellusci, the WCIRB's chief actuary. In my next post, I'll feature the comments of several of the opponents of the proposed pure premium rate increase.
The WCIRB doesn't actually set comp insurance rates in California. Neither does the Insurance Commissioner. California deregulated comp insurance in the early 1990's. There is no minimum rate law anymore, nor is there a maximum rate that insurers can charge.
That being the case, what then is the rate-making function of the WCIRB and the Insurance Commissioner?
That has to do with the "pure premium rate" that is recommended by the WCIRB. You can think of it as a recommended price. Kinda like what a car dealer might claim is the MSRP, which is then jacked up with all sorts of other charges and add-ons.
For example, in the first half of 2007, the "pure premium rate" averaged $1.96 per $100 of payroll, but the average insurer rate charged to employers was $2.93 per $100 of payroll. Bellusci admitted in testimony that insurers are charging on average over 45% above the pure premium. With that kind of boost, it's hard to claim with a straight face that competition is reigning in large insurer profits.
The Insurance Commissioner does not have to adopt the WCIRB's pure premium rate recommendations. Prior Insurance Commissioner John Garamendi rejected the recommendations on occasion. Yesterday's hearing was part of the fact-finding process leading up to the Insurance Commissioner making his recommendation.
But back to Bellusci and his power point presentation. Bellusci, an able spinmeister, noted that:
-the WCIRB recently submitted a draft paper to CDI actuaries that addresses concerns about the historical inaccuracy of WCIRB comp rate forecasts and problems in the rate filing process
-"pure premium" rates have dropped over 68% since 2004 (caution: note again that insurers actually charge on average 45% over the pure premium, so rates haven't actually dropped by 68%)
-in 2006, the estimated ultimate loss ratio was 35%, meaning that insurers paid out in benefits to and on behalf of injured workers just slightly over 1/3 of all premium dollars collected
-in 2006, the total of benefits paid out, allocated loss adjustment expenses (known to actuaries as "LAE") and unallocated loss adjustment expenses (known as "ULAE") was 47% of premium dollar. (note: Bellusci's stats make it clear that this leaves a spectacular profit margin for insurers on a state-mandated social welfare program)
-the WCIRB projects permanent disability savings of 60% because of use of the current PD rating schedule (Bellusci noted that upcoming amendments to the schedule may change all that)
-claim "frequency" (i.e. how many claims are pursued) continues to decline; claim frequency has increased in only 3 years since 1993, and of the 3 years, only 1999-2000 was a significant increase
-the estimated loss per indemnity claim rose slightly in 2006, but is still significantly lower than it was in 1999
-the WCIRB projects that AB 338 (the recently signed bill which allows workers to draw 2 years of temporary disability over a 5-year period) will increase TD payouts by about $71 million, a 6.5% increase
-loss payouts (i.e. medical treatment costs, temporary disability, permanent disability payments, retraining voucher payments, etc.) have declined from $16 billion in 2003 to $7.7 billion in 2006, but insurer overhead (remember those allocated and unallocated loss expenses, the ALAE and the ULAE!) have remained at about the same level as 2006; thus the ratio of insurer overhead to loss payouts (benefits to workers) has skyrocketed
-Bellusici mused about factors tending to reduce loss adjustment expenses: claim frequency is down, vocational rehabilitation is virtually eliminated, and penalties for insurer delays have been dramatically reduced
-Speculating about factors tending to increase insurer overhead, Bellusci noted that the 2004 reforms have added complexity to the system, with increased utilization reviews, apportionment to causation, MPN issues, lack of familiarity with the AMA guides, and "attempts to circumvent rating produced by the new PDRS" being cited as possible factors (note: no statistics were introduced to substantiate this)
-Bellusci revealed that medical cost containment expenses per claim in 2005 were up 73% from 2002. Insurers are clearly spending more money on strategies to reduce medical treatment given to workers
-the WCIRB now recommends a 27:1% ratio of loss adjustment expense (i.e. overhead) to losses (benefits paid to or on behalf of workers); overall, the WCIRB recommends to Insurance Commissioner Poizner a 5.2% increase in the "pure premium rate" (the recommendation would have been 4.2% if AB 338 had not been enacted).
Stay tuned. Soon, I'll be covering the testimony of opponents of the rate increase.
Tuesday, October 23, 2007, 04:32 PM - Understanding the CA WC systemOn the 22nd floor of a San Francisco highrise this morning, a small army of insurance company actuaries and lobbyists attended hearings on California's workers' comp pricing.
It's what's known as the "pure premium rate." The Workers' Compensation Insurance Rating Bureau (WCIRB) has recommended to Insurance Commissioner Poizner that the pure premium rate be hiked.
Opponents testifying included representatives from the California Labor Federation, the California Applicants' Attorneys Association, and an actuary speaking on behalf of several members of the public advisory board to WCIRB.
I attended the meeting, and in a post this evening, I'll be covering what occurred. Check back later.
Sunday, October 21, 2007, 03:06 PM - Political developmentsMost Californians are too busy enjoying the Indian Summer weather to focus on workers' comp right now. Up here in the People's Republic of Berkeley and down on Figueroa in the land of Troy, there's deep mourning that Cal and USC's football teams aren't the invincible units we projected them to be.
But some important comp developments are unfolding, so we'll cover them for you.
The California Workers' Comp Rating Bureau (WCIRB) has noted that the 2004 comp reforms saved $2.2 billion.
Several studies-including an ongoing survey by UC Berkeley researchers-have shown that disabled workers are receiving about half of what they had previously received to compensate for permanent disabilities.
It's in that context that DWC Administrative Director Carrie Nevans noted last week at a Huntington Beach conference that planned changes to the PD rating schedule will likely increase system costs by $150 million. These changes may be announced any day now. I'll be covering this issue in detail as the new schedule is announced.
Workers with back injuries will see their ratings upgraded somewhat. Workers with knee injuries and psyche injuries will see their ratings downgraded. And workers with "zero impairment" who are bounced out of their jobs because of work restrictions will receive no relief.
But Nevans' message is clear. Insurer profits will be protected on her watch. For those new to the blog, take a look at my article, "California Workers' Comp System "Fixed" So That Insurer Profits Are Greater Than Benefits Paid to Injured Workers," which you can find by clicking here:
http://www.workerscompzone.com/index.ph ... 518-115548
Nevans may have to answer to others in Schwarzenegger's administration and thus may not have the authority to do more. But there's been a lack of public musing on her part about benefit adequacy in a system that now ranks lower than most other states in most categories for compensating disabled workers.
There's been more public comment about benefit adequacy from insurer advocates-insurer executive Mark Webb and defense attorney Clifford Sweet come to mind-than from Nevans, who presumably is charged with running a system that benefits workers and employers alike.
Relative to the savings that have been generated and the carrier profits that have been pocketed, Nevans' $150 million increase is truly crumbs.
Thursday, October 18, 2007, 12:39 PM - Personal injury and WCBoxer & Gerson partner Jean Hyams has won a $1.3 million race discrimination verdict against BART (Bay Area Rapid Transit District).
The case was featured in an article in today's San Francisco Chronicle. To read about the Chronicle piece on the case, click here:
http://www.sfgate.com/cgi-bin/article.c ... =printable
Racial discrimination still exists in the workplace. Boxer & Gerson salutes Jean Hyams for her great trial work on behalf of California employees.
Monday, October 15, 2007, 08:52 PM - Political developmentsGovernor Schwarzenegger vetoed a number of family-friendly bills over the weekend. The overall picture is of a governor who puts corporate values over family values.
I did an article on this for today's California Progress Report. Click here to read about the Schwarzenegger vetoes:
http://www.californiaprogressreport.com ... er_58.html
Over the long term, Arnold will have trouble casting himself as a moderate, pro-family governor if he cannot distance himself from his corporate controllers. In future posts, I'll be discussing many of the vetoes in more detail. In the meanwhile, you can subscribe to the blog by using one of the RSS reader buttons on the lower right hand scrollbar.