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FLASH
REPORT!
Bureau Calls For 24.4 %
Increase
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 Under
intense pressure to hold rates down the Governing
Committee of the WCIRB, minutes ago, approved a 24.4%
mid-term rate increase. It will be effective with new or
renewal polices on or after July 1st, 2009. The
Governing Committee withstood political calls for a
lower filing and political pressure in favor of a
rational approach to the reality of the situation. The
meeting lasted nearly three hours.
Yesterday,
Workers' Comp Executive broke the news that the WCIRB
actuarial committee was recommending a 27% increase
attributing the causes to both medical cost inflation
and specifically a 7% component increase to the recent
en banc decisions by the Workers' Comp Appeals Board
(WCAB). The article also reported that this would likely
bring an ignoble end to Governor Arnold Schwarzenegger's
2004 workers' comp reform.
Late in the afternoon
Governor Schwarzenegger responded and issued a public
letter to Insurance Commissioner Steve Poizner
expressing dismay at the effect such an increase would
have on California business. The Governor referenced the
WCAB decisions, saying they were inconsistent with the
law and expressing confidence they would not stand
through the appellate process.
The Governor also
referenced Poizner's reduction of the recommended 16%
rate increase last time in favor of a 5% increase and
asked him "to demonstrate his understanding of the
issue" and to reject the currently proposed increase.
Poizner has an exploratory campaign for Governor
underway.
Camille Anderson, spokeswoman for
Governor Schwarzenegger's office, asked if the governor
understood the Commissioners rate decision is not
binding upon carriers, replied "The governor understands
how it works. He's just advocating for lower rates."
The Meeting
The WCIRB vote was 7 to 2
with labor and business opposed in the person of Emily
Clayton sitting in for Angie Wei , of the California
Labor Federation, joined by Bruce Wick of the California
Association of Specialty Contractors representing the
business seat.
The components of the rate broke
down as follows: 5.8 % of the increase is directly
attributed to the WCAB decisions. The Committee in
general agreed that this level is at the low end of
conservative assumptions, that it could develop higher
and that it will be monitored closely.
As for
the rest of the increase, a significant portion was
attributed to what was disallowed by Commissioner
Poizner last time, sort of a it's time to pay the piper
sooner or later scenario. Of the remaining portion four
factors - each about equal -create the numbers.
First, increases in medical losses from accident
years '06 and '07 are developing at a higher than
expected (or predicable) cost; Second, the '08 medical
severity has developed significantly higher; Third,
wages are down significantly and expected to drop
further, so less premium has to be balanced against the
predictable losses per thousand of less payroll; and
Fourth, changes in the medical inflation rate from 5% to
7% contribute its share.
Regarding the State
Compensation Insurance Fund: The same methodology as was
used last time was employed this time. That is,
excluding SCIF's medical loss development for the time
being, and including only 50% of SCIF's Loss Adjustment
Expenses. Note that if SCIF's medical was included, the
filing would have been 2 to 3 percentage points higher
but because of SCIF's backlog it was felt that this
would not present an accurate predictive reading.
A
more complete analysis of the filing and the meeting
will be provided to premium subscribers in the upcoming
PDF edition.
-30-
Filed in San Francisco
by Brad Cain and in Sacramento by Dale Debber
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Sincerely,
Santa Maria &
Company
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PLEASE
NOTE
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WE
WILL BE MOVING
our
office effective
March
16, 2009
The new address will
be:
1550 Parkside Drive,
Suite 200
Walnut Creek, CA
94596
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