Most of us are now aware the Workers’ Comp Insurance Rating Bureau recommended a 24 percent rate increase effective July 1. So what are they thinking? Don’t they know that California has been called the epicenter of the national recession and that our state has the highest jobless rate in a generation? What is this, a death blow?
Probably not, but it is likely a sign that we are on course for a “perfect storm” – a simultaneous occurrence of events that, when taken individually, would be far less powerful than the storm resulting from their chance combination.
These events are:
1. Medical and time-off cost increases – a 10-year history of almost double-digit increases in workers’ compensation claim costs.
2. Permanent disability benefits expected to increase – The 2004 reform adjusted significant abuse in this area but some think it went too far … the pendulum is beginning to swing the other direction.
3. 7.6 percent unemployment rate – making it much harder to return injured workers to transitional or light-duty positions.
4. Soft market – Since the 2004 reforms, a frenzy of competition has taken place and workers’ comp rates have plummeted. The low-price leaders generally don’t make it.
5. Investment returns disappear – Given the current economy, carriers are no longer able to rely on premium investment returns, and there are questions related to the solvency of several of the largest workers’ comp insurers.
6. Obesity is on the rise – This trend could result in increased injury frequencies and longer disability durations.
7. Aging work force – This could result in more pre-existing conditions and slower healing rates.
8. Prescription drug remedies – The increasing use of narcotic prescription drugs to alleviate pain also prolongs a final claim resolution.
Already, political forces are vocal and loud. The governor has encouraged Insurance Commissioner Steve Poizner to reject the increase. Rate-increase opponents believe that companies will go out of business or move out of state if this occurs and that it will be political suicide for our elected officials who let this happen.
It is important to note, however, that even with a 24 percent increase, workers’ comp premium rates would still be on average about 50 percent lower than they were in 2003.
As an employer, you can lessen the impact of the storm by focusing on three things:
1. Injuries – if you have no claims, the impact of any rate adjustment will be measurably less. It’s time to value proactive safety efforts more than ever before.
Workers’ comp claims generally affect your premium rates for three years. And from the moment an injury occurs, you need a clear action plan in place to bring the claim to resolution. The right strategy can save thousands of dollars and involves strong claims management, an effective medical provider relationship and careful internal communication.
For best results, seriously consider outsourcing this effort to a service that will expertly handle the follow-up and coach you internally along the way.