State of the California System

At the 2019 WCIRB Annual Conference, Dave Bellusci, WCIRB Executive Vice President and Chief Actuary talked about the status of the California workers’ compensation system. Some key talking points were:

• Total premiums in California have dropped since 2017 after 7 straight years of increase. There are $15.7 billion in premiums forecast for 2019.
• Employer payroll growth has been offset by declining premium rates which has resulted in the overall premium declines.
• The top 10 carriers currently write around 50% of the marketplace. This is the least concentrated the market has been in years.
• National carriers write the bulk of the California marketplace.
• The California State Fund market share is at an historical low level. At one point over half the market was written by the Fund and it is now around 8%.
• Average charged rates are down one-third since 2015 and down two-thirds since 2003. Rates have not been this low in over 40 years.
• Even with all the rate decreases, California is still a very expensive state compared to others. California is second to only New York in terms of averaged charged rate based on the Oregon study that is published bi-annually.
• Continuous Trauma (CT) claims add about 19% to rates and post-termination CT claims add about 7% to rates
• The proportion of CT claims to the total has doubled since 2006.
• Claim frequency has been fairly flat with a rate of 14.4 indemnity claims per 1000 employees. This is a higher frequency rate than 2010 but lower than the immediately prior years.
• California’s frequency of permanent partial disability claims is 250% of the national median for such claims. This is in spite of the fact that California payroll is focused in lower hazard industries than most other states. The reason for more PPD claims is based on the legislation, not the hazards.
• California’s average claims severity is above the median, but not the highest as there are several claims with higher costs per claim.
• California’s medical cost per indemnity claims is only 6% above the national median. This has been one of the biggest areas in system improvement.
• Medical severity has increased the last two years after 7 straight years of decline.
• California’s medical inflation since 2001 is below NCCI states and significantly less than California group health.
• Costs of opioids per claim in 2018 compared to 2013 is lower by 90%. There are a variety of factors that play into this. Overall pharmacy costs are down 80% during this same period.
• California’s claims tail behaves differently than other states. The countrywide median for percentage of total medical paid after 3 years is 70%. California is 48%.
• The typical NCCI state has only 23% of medical paid after 5 years where in California is 38%. The longer medical claims tail makes the costs much more susceptible to medical inflation.
• California’s unallocated loss adjustment expenses (ULAE) is 13.6% of total claims costs. This is higher than any other state.
• California’s allocated loss adjustment expenses (ALAE) is 22.9% of total claim costs which is more than double the national median and by far the highest in the nation.
• Average ALAE has continued to climb at rates significantly higher than indemnity or medical inflation.
• The number of medical liens is down post the 2017 reforms. This is a cost factor that is unique to California.
• The 2018 accident year combined ratio is 90%. This is five years of 90% or lower. This has climbed the last three years.
• Carrier rates have continued to drop even though expenses are climbing. This is driving the increase in combined ratios and those are expected to continue to decline.