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Dave Jones, California’s Insurance Commissioner, issued today a revised workers’ compensation insurance advisory pure premium rate, lowering the benchmark to $1.74 per $100 of payroll for workers’ compensation insurance, effective July 1, 2018.

Jones’s order sets the advisory pure premium rate below the $1.80 average rate recommended by the Workers’ Compensation Insurance Rating Bureau (WCIRB) in its filing.  He issued the advisory rate after a public hearing and careful review of the testimony and evidence submitted by stakeholders.  The pure premium benchmark rate is only advisory, as the Legislature has not given the insurance commissioner authority over workers’ compensation insurers’ rates.

The commissioner has the authority to regulate auto, home, and property insurance rates and has saved consumers and businesses $3.1 billion in rates by rejecting excessive rates or rate increases for those lines of insurance, but the Legislature has not given the commissioner the authority to regulate workers’ compensation rates.  Under California law, workers’ compensation insurers set their own rates.   

The purpose of the pure premium benchmark rate process is to review costs in the workers’ compensation insurance system and to confirm that rates filed by insurance companies are adequate to cover benefits for injured workers and to provide information to employers, workers, and the public about the cost trends in the system. 

Dave Jones has reduced the benchmark rate by 36.5 percent since January 2015, when the average pure premium rate was $2.74 per $100 of payroll.  With an average filed pure premium rate of $2.22 per $100 of payroll as of January 1, 2018, insurers are on average applying pure premium rates that are 27.6 percent more than the indicated pure premium rate approved by the Commissioner today.   Further, according to Jones, even after considering the industry’s extensive use of rating plan credits, industry profitability appears to be substantial as a percentage of premium.

“It is time insurers do the right thing and pass along more cost savings to California employers who deserve to share in the benefits cost reductions have brought to the workers’ compensation system,” Dave Jones said.  “In addition to the cost reductions that have led to higher profits, insurers are also benefitting from the federal income tax break, which should result on average in about another five percent decrease in premiums.” 

The WCIRB’s pure premium advisory rate filing established that overall costs continue to decline in California’s worker’s compensation insurance system.  The pure premium advisory rate reduction is based on insurer’s cost date through December 31, 2017.  Insurers’ net costs in the workers’ compensation system continue to decline as a result of SB 863, SB 1160, and AB 1244 enacted by the Legislature and Governor Brown. The WCIRB noted continued favorable medical loss development including acceleration in claim settlements.

*Workers’ comp pure premium decision and order

lonce@adjustercom.com