California WCIRB Offers Testimony About System Cost Drivers

San Francisco, CA (WorkersCompensation.com) - At a recent California Department of Insurance (CDI) public hearing, Bill Mudge, the WCIRB's President and CEO and Dave Bellusci, the WCIRB's Chief Actuary, testified before the Insurance Commissioner in support of the WCIRB's July 1, 2012 Pure Premium Rate Filing (Filing). In the Filing, which was submitted to the CDI on April 12, 2012, the WCIRB proposed advisory pure premium rates that average $2.51 per $100 of payroll which is 4.1% higher than the industry average filed pure premium rate as of January 1, 2012 of $2.41. In his opening statement, Mr. Mudge cited the effect of the disparity between the growth in claim costs and the growth in wage level since 2005 as a primary factor leading to increases in the indicated average pure premium rate.

In his testimony, Mr. Bellusci provided additional information about some of the causes of this growing disparity and their impact on the WCIRB proposed July 1, 2012 pure premium rates including continued adverse loss development, sharp growth in allocated loss adjustment expenses, high indemnity claim frequency in 2010 and 2011 and lower than previously expected forecasts of wage growth for 2012 and 2013. According to Mr. Bellusci, “the most significant factor is the deteriorating loss development. Ultimate loss ratios for the last several years, which are based on actual historical paid losses, increased significantly between March 31, 2011, the experience underlying the January 1, 2012 filing, and December 31, 2011, the experience underlying this filing.” Mr. Bellusci cited several years of deteriorating claim settlement rates, a sharp increase in late reported claims, increased claim complexity as a result of Ogilvie and Almaraz/Guzman, and a slowing in medical payments in part the result of Medicare set-asides and medical liens.

In response to questions from the Commissioner, Mr. Bellusci also discussed medical cost containment expenses and the actions the WCIRB has taken to separately evaluate these expenses as loss adjustment expense instead of medical expense. “By next year at this time, we will have one full year [2012] in which medical cost containment expenses will have been separately reported and completely segregated from medical; and we will have a second year, 2011, for which the vast majority of these costs have been reported this way. For filings made in 2013 and later, medical cost containment expenses will be included in projected allocated loss adjustment expenses and not medical losses.”

Below is a link to the WCIRB presentation made at today's hearing. The hearing officer will close the public record on May 16, 2012. Once the record closes, the Insurance Commissioner will issue a decision within 30 days.

May 15, 2012 Presentation – July 1, 2012 Pure Premium Rate Filing (PDF)

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