Stack of Papers

Workers’ compensation premiums in California continue to grow at double-digit rates, according to the Workers’ Compensation Insurance Rating Bureau.The WCIRB recently released its “State of the California Worker’s Compensation Report,” and authors of the report highlighted developing trends over the past few years in the wake of the state’s massive workers’ comp reforms.

If nothing else, the report shows the magnitude of California workers’ comp system on a national scale. It also shows California has the highest premium rates in the country.

You may be wondering, why are California’s workers’ comp premiums so high?

The report cites three principal factors as answers to that question: California has the highest permanent disability claims frequency in the nation, the state has among the highest claims in terms of medical costs and it has a high cost of delivering benefits.

In California there are on average 14.5 claims per 1,000 employees, putting it roughly 50 percent greater than the national median. And partial permanent disability claims is 704 per 100,000 employees in California, more than twice the national median of 327. This is despite the state’s hazard level being considered below the typical state, with on average fewer manufacturing and other potentially dangerous jobs.

The report also offers a take on the effectiveness of SB 863:

“Senate Bill No. 863 impacts have generally been emerging consistent with initial WCIRB projections with potentially greater-than-projected savings in medical cost reductions offset in part by less-than-projected savings in reduced frictional costs.”

The allocated loss adjustment expense cost per indemnity claim are growing, they are not shrinking, as would be expected following the passage of SB 863.

“California has the highest ratio of loss adjustment expenses to losses in the country,” the report states.

The figure has been on the rise since 2011, and is nearly $5,000 higher than at the point of the 2003 reforms.

SB 863 was intended to minimize litigation costs, but continued expedited hearings and a higher volume than expected of Independent Medical Reviews being conducted may have driven that up, the authors said.

There was some interesting news for insurers. In recent years, California workers’ compensation combined ratios have generally been higher and returns on net worth lower than countrywide averages, however the combined ratios have been falling since 2010. The report shows that many of the intended changes made by SB 863 are having a positive impact. Medical lien filings have dropped considerably, new rules on spinal implants are saving money and changes to the physician fee schedule are also reducing costs.