The Workers Compensation Insurance Rating Bureau has recommended a pure premium rate increase of 6.9 percent for 2014, the result of several factors that could drive up costs for certain employers.
[caption id="attachment_80577" align="alignright" width="330"] Mark Stokes, David Weinstein[/caption]
Brokers in the North Bay said the proposed increase, which is an advisory rate and is not binding, is partly in response to rates during the recession that were kept artificially lower by carriers. Now, carriers are raising rates as the economic recovery takes hold.
While the rates can vary vastly from one industry to the next, Oct. 1 is a major renewal date for contractors and construction, which tends to have a higher claims rate.
"We're seeing some significant increases," said Mark Stokes, managing director of Wells Fargo Insurance Services in Petaluma.
The rating bureau's recommended rates would average $2.70 per $100 of payroll for plans effective Jan. 1, 2014, up from the July 1 average of $2.53.
Carriers are free to set their own rates, although the state Department of Insurance can put forth its own recommendations on workers compensation rates.
Steve Rogers, owner of Rogers and Young Insurance Services in Windsor, said the proposed rate increase is not particularly surprising given that carriers held their rates down for the past several years.
"Seven percent is probably within reason," he said. "The reality is, when the economy was terrible and we were all trying to hold the line on insurance, the premiums didn't go up a lot."
The proposed rates do indicate that both claims and the cost of health care could be driving up costs for carriers, according to David Weinstein, vice president of Vantreo's CompZone Division, echoing the bureau in its reasoning.
"Since [the rates] are based on insurer experience by the carrier, it's significant," he said. "If the claims were going down and underwriting profits were really good, the bureau wouldn't come out with a rate increase."
In a Sept. 13 notice, the rating bureau said the proposed increase on the pure premium rate "reflects insurer loss and loss adjustment experience valued as of June 30, 2013." The proposed increase does not reflect any provision for "potential changes to the office medical fee schedule," which his currently under consideration by the Division of Workers' Compensation, who's governing committee will meet on Oct. 23, 2013 to consider the impact of any adopted changes.
Still another factor that could be driving rates up is tighter underwriting guidelines by the carriers, Mr. Stokes of Wells Fargo said.
"We're seeing a much more disciplined approach to underwriting by the carriers," he said. "Carriers are going to a very mechanical approach, whereas underwriting has been an art to a certain degree, having subjectivity."
While the prospect of increasing rates is sure to cause pause for some employers, Mr. Weinstein and Mr. Rogers both said any increase could be partially negated by a relatively competitive California State Compensation Insurance Fund, better known as State Fund.
"One thing that is happening is that the State Fund is actually competitive," with private carriers, Mr. Weinstein said. "And that's probably a sign that the hardening of the market has slowed."
Mr. Rogers noted that for higher risk industries like contracting and roofing, the State Fund is an important metric to consider.