California’s Insurance Commissioner Ricardo Lara has announced a new, reduced rate for workers’ compensation insurance, lowering the annual benchmark rate from $1.41 to $1.38 per $100 of payroll. This 2.1 percent decrease will take effect on September 1, 2024. The decision reflects ongoing trends in the state’s workers’ compensation landscape, including a reduction in the number of medical services per claim and a decline in claims involving permanent disability benefits.
Factors Behind the Rate Adjustment
Several factors contributed to the rate reduction. Notably, the continuous decrease in medical services required for each workers’ compensation claim has played a significant role. Additionally, there has been a persistent drop in the percentage of claims that involve permanent disability benefits. These trends indicate improved workplace safety and effective claims management practices, which have collectively contributed to lower costs for insurers.
Incorporating COVID-19 Experience in Rate Setting
An important aspect of the new rate adjustment is the inclusion of COVID-19 experience in the rate-setting process. The Workers’ Compensation Insurance Rating Bureau of California’s (WCIRB) September 1, 2024, Pure Premium Rate Filing includes data from accident year 2023. This marks a shift from previous years, where COVID-19-related claims were excluded from consideration. Incorporating this data provides a more comprehensive view of current claim trends and ensures that rates are reflective of the current risk environment.
The Commissioner’s Advisory Pure Premium Rate
Commissioner Lara’s decision sets the average advisory pure premium rate at $1.38, slightly below the $1.42 proposed by the WCIRB. It is important to note that this rate is advisory, as the Commissioner does not have statutory authority to set workers’ compensation rates directly. The approved rate is based on a thorough analysis of insurance companies’ cost data, industry trends, and recommendations from the Department’s workers’ compensation experts.
Implications for the Insurance Industry
The new advisory pure premium rate of $1.38 is significantly lower than the industry-filed average rate of $1.75 as of January 1, 2024, representing a 21.1 percent decrease. This reduction could lead to considerable savings for businesses across California, encouraging economic growth and stability. Insurers, meanwhile, will need to adjust their pricing strategies and operational models to align with the new benchmark rate.
In conclusion, California’s reduction in workers’ compensation rates underscores the state’s commitment to maintaining a balanced and fair insurance market. By incorporating recent data and industry trends, the new rate aims to reflect the current state of the workers’ compensation landscape accurately, benefiting both employers and employees.