Smoke.. Meet Mirrors. What The Workers’ Comp Rate Cut Really Means

Up & Down ArrowsWhen the Workers’ Compensation Insurance Rating Bureau (WCIRB) recently recommended decreasing their premium rate by 1.8 percent my first thought was, “That seems odd.”  I mean, I understand that Worker’s Compensation claims are down overall by 1.6 percent in California alone but that’s just because of a major reduction in the workforce. Fewer jobs. Fewer Workers’ Compensation claims.

Despite this, as recently as July 1st the WCIRB considered bumping the rate by 40 percent. So which is it? Both.

Basically there is a new way of calculating.  

What we all need to keep in mind is that Workers’ Comp claims are a moving number. It’s not like 2009 is a closed accounting year. Claims that were made during that time can still develop further and injured workers still receive treatment and money from 2009 claims.

The hidden danger is that the large number of laid off employees in 2009 filed claims after they were fired and have no real incentive to get back to work.. Since there is no limit on the dollar amount or the length of time Workers’ Comp will pay out, this 2009 payout number could grow drastically.

This could be why on August 10th, 2011 the Workers’ Compensation Insurance Rating Bureau (WCIRB) essentially recommended a 40% rate increase for insurance companies to stay solvent. They have been analyzing the numbers for the state and recommending increases from 20-40% since 2008.

The recommendation was always shot down by former insurance commissioner, Steve Poizner. Some in the industry would say that the rates were artificially suppressed by the then aspiring governor so to not lose the small business vote. Poizner always countered that there were efficiencies available to the insurance carriers that were not fully taking advantage of.

So we need higher rates to survive but no one want to see rates go up. The solution? Calculate the new rate against a higher figure. By starting with a higher number you can cut the rate by the proposed 1.8 percent and still end up with a 40 percent rate increase. 

Smoke meet Mirrors.

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