State of the System: WCIRB Perspective

At the 2017 WCIRB Annual Conference Dave Bellusci, WCIRB Executive Vice President and Chief Actuary, presented an update on the state of California workers’ compensation. The highlights:

• Premiums in California have doubled from 2009 to 2015. This is a combination of rate increases and payroll increases.
• Since 2015 the premium growth has moderated due to rates being lower and most of the growth is due to payroll increases.
• In 2016 California represented 29% of the countrywide workers’ compensation premiums. This is up from 19% in 2009 and driven by strong economic recovery and higher rates in the state.
• Only 11% of the nationwide workforce is in California, so the fact that 29% of the nationwide premiums are here reflects the higher rates in the state compared to others.
• The market concentration has been decreasing with the top carriers writing a smaller percentage of the overall marketplace than in years past. This shows increased competition in the marketplace.
• About 70% of the marketplace is national carriers.
• 44% of the payroll in California comes from clerical and other low rated class codes. These only account for 17% of the premiums in the system.
• Manufacturing makes up 7% of the payroll and 14% of premiums.
• 35% of indemnity claims and 29% of premiums are from the LA basin area.
• The average rate per $100/payroll in the first quarter 2017 was $2.58. Back in 2003 the average rates were over $6.
• Average rate charged is down 15% in the last two years.
• The average rate today is about the same as it was 40 years ago. While medical costs have increased significantly since that time, claim frequency has decreased and those two things have essentially offset each other.
• According to the 2016 State of Oregon study of workers’ compensation rates, California is the highest cost premium state in the nation with rates almost double the national median.
• Although rates in California have been decreasing, California rates in 2016 were more than 10% higher than the next highest cost state which is New Jersey.
• Claim frequency is down 83% in the past 50 years. About a third of this is due to payroll shifting into less hazardous classes. Safety is also a factor as is automation.
• Since 2012 frequency rates in California have varied from national trends with California frequency increasing slightly most years since then while NCCI states have steadily decreased.
• The increases in California claim frequency has been driven almost exclusively by cumulative trauma claims from the LA basin.
• California has by far the highest permanent partial disability frequency in the country. It is more than twice the national median and significantly higher than the second ranked state which is Missouri.
• The higher PPD frequency rate is not caused by accident severity, occupation mix or the version of AMA guidelines. It is driven by litigation.
• California’s proportion of cumulative trauma claims has more than doubled in the last decade and they now represent 18.2% of indemnity claims. This is not a phenomena seen in other states and is a symptom of California’s low causation standards.
• The average cost of of indemnity on a lost time claim in California is up 3.8% from 2015 to 2016.
• The average cost of medical on a lost time claim in California is up 6.1% from 2015 to 2016.
• California’s medical cost per indemnity claim are the second highest in the nation (behind Delaware) and it is 64% higher than the national median.
• California’s workers’ compensation medical inflation over the last 15 years has been much less than in group health and also less than in NCCI states.
• California’s claims tail is much longer than other states. Only 36% of ultimate medical costs are paid after three years in California vs the national median of 61%.
• More than 40% of medical costs in California are paid after five years compared to 25% median in NCCI states.
• Almost half of indemnity claims in California are still open after two years. This is double the median from NCCI states.
• Since SB 863, the rate at which indemnity claims have closed has accelerated in California, but this is still much higher than national averages.
• The rate of loss adjustment expenses in California is 35% compared to a median of 18% across NCCI states. The second highest cost state is Hawaii at 23%. Loss adjustment expenses are a much bigger system cost driver in California compared to other states.
• Liens are another California phenomena and these dropped dramatically after a law change in 2013. However, the number of liens in 2015 and 2016 doubled compared to 2013.
• Indemnity claim frequency is significantly higher in the LA basin than the rest of the state, again driven by CT claims.
• Projections of industry wide combined ratios for 2016 is 95%. This is a 42% improvement since the SB 863 reforms five years ago.
• The latest impact of savings from SB 863 show a savings of $1.3 billion per year in premium costs.
• Upcoming issues that could impact costs include the drug formulary which is being developed, limitations on utilization review in the first 30 days, and restrictions on lien filings.