California Insurance Commissioner Steve Poizner said yesterday he is rejecting a request for an increase in the advisory rate he issues for workers' compensation insurance coverage, which will remain unchanged.
Mr. Poizner said the sector needs no change in rates to make money.
California's workers' compensation insurers "are enjoying a robust market and extraordinary profitability," said Mr. Poizner.
"Costs to insurers have plummeted 70 percent since 2003. This represents a tremendous savings that should allow insurers to give businesses additional relief in the form of lower rates. It is clear that the runaway cost of claims to insurers has stabilized," he said.
Mr. Poizner added that the stability and the competitive marketplace for workers' compensation insurance should lead to a decrease in premiums.
"Businesses must also benefit from the decrease in costs to the system," he said, noting in his announcement that rates have declined by only 55 percent since the reforms were enacted in 2003.
The pure premium rate is an advisory rate set by the state Department of Insurance to serve as guidance for the market. In September, the state Workers Compensation Insurance Rating Bureau sought an increase to the pure premium rate of 4.2 percent, and then amended their filing a month later to seek a 5.2 percent increase.
In his official decision maintaining the pure premium rate, Mr. Poizner said the WCIRB based its proposed increase on higher loss adjustment expenses reported by insurers but argued that those numbers were misleading.
"The evidence and analysis show that this is in large part due to the costs of insurers dealing with the changes resulting from the reforms and also having to deal with retroactive effects on existing claims," he said in the decision. "A significant portion is one-time costs and should not be part of an adjustment to the pure premium rates."
Mr. Poizner added that while loss adjustment cost increases were seen resulting from earlier reforms to the workers' compensation system, the WCIRB has already begun to monitor those changes and will determine if the increased loss adjustment costs are permanent or only temporary.
Overall, Mr. Poizner said that "it is clear from the actuaries' review that the industry continues to make a very healthy return on the premium it charges for workers' compensation insurance and its investment income from those premiums."
The loss ratios for companies in the state, he said, are at historic lows and are "far lower' than those of companies elsewhere in the nation. As a result, Mr. Poizner said a change to the pure premium rate "is not warranted in light of the substantial profitability the workers' compensation insurance industry is experiencing in California."
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