California Workers' Compensation Insurance Outlook 2011: An Attorney and Employer's Perspective
David H. Parker
The California Insurance Industry, like every other
industry in the last few years, has clearly suffered
the effects of the economic downturn. One major
insurer has indicated that workers' compensation
insurance throughout the United States is a loss
leader, which means that writing this type of
insurance does not afford an insurance company much
if any profit. In fact, often writing a workers'
compensation insurance policy costs more in the
beginning than the price of the premium due to
marketing, underwriting and other costs completely
unrelated to loss data.
Many feel that the California Insurance Industry
is likely to take a much longer time to recover from
the economic downturn than other states. This is due
to what is perceived to be a relatively liberal
court system, a more liberal political climate and
to workers' compensation case law developments which
have eaten away at insurance company and employer
gains made through SB 899, a comprehensive
legislative reform passed in April 2004.
Though the California Workers' Compensation
Insurance Industry may not post large 2011 gains or
profits, raises in premiums may well be a
development in all California employers' futures. On
August 18, 2010 the Workers' Compensation Insurance
Rating Bureau submitted a "pure premium" rate filing
to the California Insurance Commissioner. This
requested a 29.6 percent rate increase in workers'
compensation insurance premiums.
The California Workers' Compensation Insurance
Market remains a "free market" or "open rating"
system. This means that an insurance company can set
its own rates. However a request such as this from
the "WCIRB" suggests that higher costs are
anticipated which require higher premiums and
reserves to properly cover future losses. In plain
language, higher costs require money to pay them.
How does an insurance company ensure the ability
to pay future losses which cost more? It can only do
two basic things: cut costs and raise premiums. Cost
cutting has recently been evidenced by State
Compensation Insurance Fund, one of California's
most prominent workers' compensation insurers. This
is a good sign, one which evidences that all efforts
are being undertaken to control costs, claims and
However given such high potential exposures it is
certainly reasonable to expect increases in workers'
compensation insurance premiums in 2011. Employers
should plan and budget accordingly.