Frequency Rates in California are Baffling

Oakland, CA (WorkersCompensation.com) - The latest information out of California begs the question, what’s going on with frequency? While the rate of workers’ compensation claims has been decreasing almost everywhere in recent years — including nationally, California’s private self-insureds are seeing an increase for the second year in a row.

The California Workers’ Compensation Institute’s latest Bulletin, based on data from the Office of Self-Insurance Plans, clearly shows that what might have been perceived as a hiccup for 2017, was repeated in 2018.

“Here, we see a popping up we haven’t seen in almost 10 years,” said Alex Swedlow president of CWCI, “and if you isolate the indemnity portion in the Bulletin, you see a more demonstrative increase in 2018; 1.36 to 1.49 [claims per 100 employees, from 2016 to 2018].”

Overall, claims per 100 employees rose from 3.30 in 2016 to 3.33 in 2017 and finally to 3.71, in 2018. Medical-only claims increased from 1.94 to 2.22 during that same period.

The increases in 2017 and 2018 followed a period of declines and/or at least stability. A sharp decline in frequency in 2005 was “followed by nearly a decade of relative stability in which total claim frequency ranged between 3.64 and 3.99 claims per 100 employees, with most of the fluctuations reflecting changes in medical-only claim frequency, as indemnity claim frequency remained within a very narrow range,” the Bulletin explains. “In 2013, the first year after SB-863 was enacted, medical-only frequency began a 3- year decline, falling from 2.33 to 1.94 claims per 100 employees, while indemnity claim frequency increased in 2013, then held steady through 2015, producing a net decline of 9.6 percent in the aggregate claims rate in the first three years after the 2012 reforms took effect.” A slight decrease in 2016 was followed by the increases in the last two years.

The data from the OSIP doesn’t explain the reasoning for the increased frequency rates. Swedlow is not ready to even say it’s the beginning of a trend.

“Two points do not a trend make,” he said. “However, this is an interesting development.”

Making it even more interesting is the fact that the latest figures from the California Workers’ Compensation Insurance Rating Bureau do not reflect the same increases for insured employers. That report shows a frequency rate in indemnity claims of 14.6 in both 2016 and 2017, then a decrease to 14.4 in 2018.

“Overall claim frequency in California has remained relatively flat, although the frequency of cumulative trauma claims continues to grow particularly in the Los Angeles Basin and San Diego areas,” the report said.

“They are clearly moving in a different direction,” Swedlow said. “How that ties out to the differences to injury characteristics, or anything else, we have yet to determine.”

CWCI will release additional analyses later this year that may help explain the frequency upticks among private self-insureds. For now, there is too little information to make any conclusions. However, there is no shortage of theories.

One is the possibility that the low unemployment rate may be a factor. Periods of high employment are often associated with increases in workplace accidents, as more inexperienced workers are in the workforce.

Another is that the Los Angeles area, often the site of higher frequency and/or severity rates for various reasons, may be impacting the overall state rate for private self-insureds.

“It’s … theoretically possible the ‘LA Basin Effect’ (cumulative trauma claims inspired by unscrupulous doctors and lawyers in the Los Angeles area) is having a disproportionate effect on self-insured employers,” wrote Joe Paduda, in his Managed Care Matters blog. “I kind of doubt it, as large employers are more attuned to this type of mischief than smaller, insured employers.”

Paduda offers another potential explanation. “Insurers’ premiums are driven by payroll, past and projected future claim counts and costs – but also by insurers’ business priorities.’ With work comp insurance profits remaining high, it is indeed possible that underwriters are ignoring warning signs in their pursuit of market share and more premium dollars.”

For the time being, however, it’s anyone’s guess as to what is driving the frequency rate among California’s private self-insureds. The latest reports on the state of the workers’ compensation system come as stakeholders await the governor’s nomination of someone to lead California’s Department of Industrial Relations.

“We’re waiting on the edges of our seats as to who the director of the DIR will be because that’s such an influential position on a day-to-day effort on the DIR and the Division of Workers’ Compensation as well,” Swedlow said. “That position has been vacant for a year.”

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