Is A 5% Increase Enough for California's Workers Comp System? - Workers Comp Premium Audit - Reserve Reviews For Employers

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Oct 24, 2008

Is A 5% Increase Enough for California's Workers Comp System?

California Insurance Commissioner Steve Poizner approved a rather anemic 5% pure premium rate increase for Jan 1, 2009. The California Workers Compensation Insurance Rating Bureau (WCIRB) had recommended a 16% increase. Is this dangerous territory to cut the increase in pure premium rates by 11% from what was recommended?

The reason for the 16% increase was due to the medical loss development. The percentage does seem to track what has occurred with the increased rates of medical treatment and number of treatments.

The positive aspect of the 5% increase is that the rates will not increase dramatically for employers in what is a down economy. This will alleviate part of the budget crunch that companies now face. The 5% increase may reduce the volatility that would likely occur with a 16% rate increase.

The negative aspect of the smaller increase may be the 5% increase may not keep pace with the medical development. This could cause a "snowball effect", as the next increases may have to be even larger to catch up to the medical development in California.

I had always thought that the recommended decrease in rates was too extensive over the last few years. Those sharp decreases may be catching up with the California Workers Compensation system.