CALIFORNIA - Workers' comp carriers charged less than they paid in claims last year and should increase rates by 22.8 percent, according to the most recent report by state actuaries. This "magic loss number," not breached since before the 2004 reforms, is just one of many signals that carriers should have long ago increased the price of policies, but their slow reaction is typical of California insurers, according to local brokers.

"The frustrating thing about it for employers, it seems to be that the market acts irrationally over the long haul," said Don Ramatici Insurance Vice President and principal Tom Griffith.

"We have seen phenomenal rates in the last four years, but I think most of my clients would have taken a more stable soft market in order to avoid the steep increases that everyone knows are on the way. That is why we have these four- and five-year dramatic cycles-overreactions in both directions."

Recently, the Workers' Compensation Insurance Rating Bureau, which is responsible for making rate recommendations to the commissioner, advised for the fourth consecutive time that insurers increase rates. The agency makes the estimates based on the average of loss experiences of state carriers and recommends changes relative to whether the rates are adequate to cover the amount paid out for claims.

The bureau attributed about 5.8 percentage points of the recommended 22.8 percent increase to a decision in several permanent-disability cases, called collectively Almaraz/Guzman and Ogilvie. The decisions are currently being reviewed by an appeals court, but if upheld, experts anticipate a significant increase in claims payouts.

Though the pure premium rate recommendations are meant solely as a benchmark for insurers and are not mandatory, local brokers say this is the first time the market has seemed to completely disregard the bureau. The recommendation for an increase has also yet to garner approval from Insurance Commissioner Steve Poizner.

"Just recently the combined ratio for California crested over the magic 100 mark, meaning they are no longer profitable. If you are over 100, you are losing money," said McDonald-Leavitt Insurance Agency managing co-owner David McDonald. The combined ratio is the difference between the amount taken in from premiums and what is paid for claims.

He called the current trend an "invisible hard market."

According to the most recent summary of workers' comp claims released Aug. 26, the average combined loss and expense ratio was 112, compared with 93 in 2007, 70 in 2006 and 55 in 2004. The same report shows carriers paid $7.8 billion in claims in 2008, $7.5 billion in 2007 and $7 billion in 2006. The average rate per $100 of payroll decreased every year since 2003 but was flat between 2008 and the first three months of 2009.

North Bay brokers said some of the high-risk categories, like construction and some agriculture, have experienced increases, but for the most part rates are still steady or only modestly increasing.

"The loss figures show the reality in the market that the commissioner won't accept primarily for political reasons. It's difficult to recommend an increase in rates in a year that the economy in general is already suffering," said Marin Pacific Co. principal Daniel Dufficy.

"It's hard to really say right now, yes, all rates are going to go up because there isn't one renewal time and private carriers all act differently. It could be another year before people wake up. I really think we are headed for another workers' comp shortage like we experienced in the early 2000s."