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April 15, 2024
Colorado Worker Shows Head Injury Happened as a Consequence of a Knock on the Head at Work

April 4, 2024
Callfornia Division of Workers' Compensation Pharmacy and Therapeutics Committee Meeting Scheduled for April 17, 2024

April 3, 2024
California Division of Workers' Compensation Posts Adjustments to Official Medical Fee Schedule (DMEPOS)

April 2, 2024
California Division of Workers' Compensation Posts Adjustments to Official Medical Fee Schedule for Pathology and Clinical Laboratory

California is finally in pretty good shape, for its Workers' Compensation rates continue to decrease dramatically. In January 2007, the Department of Insurance approved a 9.5-percent rate decrease, and in July of 2007, an additional 14.2-percent decrease. These two decreases were on top of six consecutive previous decreases. When multiplied together, the Department of Insurance has actually recommended decreases of 65.4 percent since January 1, 2004.

The workers' compensation market in California has changed radically. In 1999, for every dollar the industry took in, it paid out $1.82.  Severe rate increases occurred, numerous insurance companies went out of business, and the industry was in turmoil. By 2003, average rates per $100 of payroll in the state of California had skyrocketed from 2.30 in 1999 to 6.47 in 2003. Simply obtaining workers' compensation insurance was a challenge for many firms. The State Fund's market share jumped from approximately 20 percent to as high as 60 percent during the height of the crisis.

Significant legislation was passed to curb the underlying losses that were driving the rate increases. These changes have been effective, and in 2003, the industry's combined ratio was under 100 percent. (The combined ratio is losses plus expenses divided by premiums. A ratio under 100 percent means the insurance industry is earning an underwriting profit.)

Since then, rates have continued to fall. This is a factor of not only decreased underlying costs, but also increased competition. Today the average rate paid by employers in California per $100 of payroll is 2.93. This is a decrease of approximately 55 percent from the high of $6.47 in 2003.

However, rates may have bottomed out. After eight consecutive rate decreases, the Bureau has recommended a 4.2-percent overall average rate increase effective January 1, 2008. Note that this increase does not include the impact of potential legislation, now pending, which could push rates even higher. At the same time, as written premiums decline significantly as a reflection of decreased rates, assuming that underlying losses remain the same or increase, insurance company margins will be squeezed, and the combined ratio will increase. This would result in higher pricing.

How About Workers' Compensation Nationally? Nationally, workers' compensation also turned in an excellent performance in 2006. The combined ratio for the nation as a whole was 96.5 percent. This is the best underwriting result in at least 30 years. If California is taken out of the equation, however, the combined ratio goes over 100 percent. California's combined ratio for 2006 is currently estimated at 65 percent.