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California comp premiums remain high despite decreases: Report



Louise Esola - Business Insurance

Workers compensation premiums are declining as continued rate decreases more than offset the impacts of continued economic growth in California, yet the state’s premium rates remain high compared with other states despite recent rate reductions, according to a report released Monday by the Workers’ Compensation Insurance Rating Bureau of California.


The state is expected to see $15.7 billion in written premium by the end of the year, a drop from the $17 billion reported in 2018 and the $17.7 billion reported in 2017, according to the report issued by the Oakland, California-based agency.


Meanwhile, the report shows that average insurer rates are down a third since 2015 and two-thirds since 2003 and that the current charged rates are at “the lowest level in a decade and are lower than rates charged since the mid-1970s, as long-term declining claim frequency and increasing wage levels have offset long-term increases in medical costs.”


However, California rates, while no longer the top in nation, “still remain high” and are “well above the national median” as shown in a 2018 report by the Oregon Department of Consumer and Business Services.


Other highlights include:

  1. California’s rates are largely driven by a high frequency of permanent disability claims, a more prolonged pattern of medical treatments, and “much higher-than-average” costs of handling claims and delivering benefits.

  2. While overall claim frequency in California has remained “relatively flat,” the report revealed that the frequency of cumulative trauma claims continues to grow, particularly in the Los Angeles Basin and San Diego areas.Claim severities have begun to increase after a number of years of relatively flat to declining claim severities following statewide reforms in 2013.

  3. Frictional costs, such as that paid to attorneys, in California are the highest in the country, with the majority going toward the handling of claims and the resolving of disputes on claims.

  4. The $3.4 billion of frictional costs paid in 2018 exceeds the cost of paid indemnity benefits after excluding applicant’s attorney fees, which are typically reported in indemnity benefits.

  5. Statewide combined loss and expense ratios continue to be well below 100% and have recently been lower than in other states.

  6. Payments for pharmaceuticals decreased 75% since 2013.

  7. Payments for evaluation and management and physical medicine services represent over 60% of all physician services payments in 2018.

  8. Three-quarters of pharmaceutical payments were for noncontrolled substances, and opioid payments continue to shrink, comprising 13% of all pharmaceutical costs in 2018.