Workers’ compensation insurance rates will likely continue sliding in 2020 after California’s rating agency submitted its recommendation that the state insurance commissioner reduce the average benchmark rates by 5.4%.
If the recommendation is approved, it will be the ninth consecutive rate decrease since 2015 (some years had two decreases), which have resulted in the average benchmark rate for all of California’s class codes falling a combined 45% since then.
The Workers’ Compensation Insurance Rating Bureau, which made the filing, said that average claims costs continue falling due to the effects of reforms that took effect in 2014. Rates are still declining because:
- Claims cost development continues falling.
- Claims are being settled more quickly.
- Average pharmaceutical costs continue falling sharply.
- The number of liens on claims continues dropping.
Offsetting those positive trends are:
- Increases in cumulative trauma claims (particularly in Southern California).
- Rising individual claim costs.
- The cost of adjusting claims is increasing.
The Rating Bureau tracks workers’ comp costs in the state and makes the recommendations for changing the benchmark rates, which insurers use to price their policies. Every class code gets its own rate, which will change depending on the trends in claims costs and numbers for that class code.
Insurers use the benchmark rates as guideposts for pricing their own policies, but in the end, they can price the policies as they wish.
After using the benchmark rate, insurers will add surcharges for various classes or regions, and add on administrative costs to arrive at their own rates. Also, rates will not fall for all employers.
Rates depend on a number of factors, including an employer’s claims history and region. Policies in Southern California, for instance, are often surcharged because of the amount of cumulative trauma claims filed in the region.
The Rating Bureau will review accident-year experience valued as of June 30 once it has the figures, and it could amend the rate filing later. The state insurance commissioner will hold a hearing on the rate filing in September or October, and then make a final decision on the rate change.
What to do
Just because rates have been falling, employers should not waver in their focus on safety.
Here are some mistakes to avoid:
Becoming complacent – Falling rates act as blinders for many employers. When the cost of your workers’ comp policy continues declining, it’s easy to shift focus away from workplace safety, injury management and cost containment to other business matters. This is a mistake and can cost you in additional workplace injuries.
Focusing on just workers’ comp premiums – Premiums are only part of the cost of workplace injuries. Indirect costs – including overtime, temporary labor, increased training, supervisor time, production delays, unhappy customers, increased stress, and property or equipment damage – represent several times the direct cost of the injury.
Expecting rates to stay low forever – Workers’ comp rates always follow a cycle of increases and decreases. As rates fall, employers reap the benefits in lower costs, but their attention to workplace safety may wither and then overall claims numbers and costs start increasing and/or reforms erode, starting a cycle of increasing rates. The key is to ride the low rates for as long as you can through unwavering attention to workplace safety and claims management.
Chasing low rates – One benefit you have from working with us is continuity, and jumping ship to another broker just to save a few thousand dollars on your premium is not always a smart choice, particularly if the new brokerage is not involved in helping you keep claims costs low.