UNDER SUBMISSION

Too much pressure can make a pressure vessel explode.

So it is with workers’ comp rates. Rather than holding comp premiums steady without an increase, is it better to see those costs rise slowly?

Perhaps.

This is part of the conundrum facing California Insurance Commissioner Dave Jones, who held a rate hearing in Sacramento last Friday. Part of Jones’ job is to determine a “pure premium” workers’ comp benchmark rate, though such a determination is totally non-binding on insurers. Thus, insurers are free to set rates lower or higher than whatever Jones finally recommends.

But just as politicians sometimes use the “bully pulpit” to influence events, the Insurance Commissioner’s determination sets the tone and is often widely cited as a snapshot of the health of California’s workers’ comp system.

Whatever Jones does will likely be covered by the business press and cited as the symbol of workers’ comp costs in California.

Politically, the Brown Administration and the major employer and labor groups who put SB 863 together have a significant interest in SB 863 being seen as successful.

The issue facing Jones is whether to accept the proposed recommendation of the WCIRB Governing Committee, which voted 6-5 for a proposal that would not increase the $2.38 per $100 of payroll pure premium rate.

That vote put the WCIRB Governing Committee at odds with the WCIRB Actuarial Committee, which had recommended an advisory pure premium rate of $2.61 per $100 of payroll.

Ultimately, the math on savings to be achieved under SB 863 is voodoo math. Neither insurers, employers, labor or the DIR/Brown Administration itself can accurately predict the level of savings and the ratio of increased costs to savings.

Jones could choose to follow the WCIRB Governing committee by recommending no increase in the pure premium rate. After all, insurers will price their workers’ comp product as they wish. Moreover, Jones would be expressing confidence in the cost-saving aspects of the reforms, even if SB 863 does not eventually yield the results sought by Brown. And Jones would not want to replicate the years after SB 899 when insurers feasted on large profits while system costs dropped sharply.

On the other hand, Jones may be concerned that the Governing Committee position is too optimistic. Jones is aware that keeping the pure premium rate at $2.38 is under the current average filed rate of $2.57 and well below the rate charged by SCIF, whose President Tom Rowe proposed the no increase motion at the WCIRB Governing Committee. Jones may decide that it is better to let the “pure premium” rise a bit gradually so as to avoid a future whopping pure premium rate increase that would create more political chaos and bad vibes for the California economy.

I wasn’t able to attend the meeting due to other commitments. But from quotes I’ve seen, Jones is clearly concerned about the health of the industry.
Quoted in a Workcompcentral.com piece by Greg Jones, Workcompcentral Western Bureau Chief, Jones notes that”
“If we don’t get it right, that could have very significant consequences for the solvency and viability of workers’ compensation insurance carriers, and in turn, the availability of product in the market and in turn the pricing of product in the market which has potentially significant consequences for employers and their ability to hire employees”.

I suspect that Jones will take the latter approach and follow the WCIRB Actuarial Committee recommendation, or something close to it.

A decision from Jones will be out before Christmas.

Stay tuned.

Julius Young
www.workerscompzone.com
www.boxerlaw.com

Category: Political developments