California Lowers Workers' Compensation Insurance Rates
Sacramento, CA – On June 6, 2024, the California Department of Insurance held a public hearing to discuss proposed changes to workers' compensation insurance rates. This hearing was part of an ongoing review process, as detailed in the Notice of Proposed Action and Notice of Public Hearing, File Number REG-2024-00008, dated May 6, 2024. The hearing, which was conducted virtually, invited public testimony and written comments, with the record closing on June 13, 2024.
Insurance Commissioner Ricardo Lara has since adopted a new, decreased benchmark rate for workers' compensation insurance, reflecting California’s growing economy. Effective September 1, 2024, the annual benchmark rate will decrease from $1.41 to $1.38 per $100 of payroll, marking a 2.1 percent reduction from last year.
The decision was influenced by several key factors, including a continued decrease in medical services associated with workers' compensation claims and a decline in claims with permanent disability benefits. After evaluating the health of the workers' compensation market, overall economic conditions, and actuarial projections, Commissioner Lara determined that a rate reduction was both reasonable and appropriate.
The Workers' Compensation Insurance Rating Bureau of California (WCIRB) played a significant role in this process. The WCIRB's filing, submitted on April 25, 2024, included data on insurer loss costs and loss adjustment expenses. Their proposal suggested a 0.9% increase in advisory pure premium rates, averaging $1.42 per $100 of payroll. However, Commissioner Lara's final decision set the advisory pure premium rate at $1.38, lower than the WCIRB's recommendation.
This rate includes COVID-19 data from accident year 2023, marking a shift from previous years when such data was excluded. Commissioner Lara also acknowledged concerns about rising litigation and claim expenses, urging further investigation into these cost drivers.
The pure premium rate is advisory, as the Commissioner lacks statutory rate-setting authority over workers' compensation rates. Insurance companies are free to determine their own rates, provided they do not threaten financial solvency, are not unfairly discriminatory, and do not create a monopoly. The approved rate serves as a benchmark for insurers, reflecting the cost of benefits and expenses associated with workers' compensation.
In summary, Commissioner Lara's decision results in an average advisory pure premium rate that is significantly lower than the industry's average rate of $1.75 as of January 1, 2024. This move aims to support California's employers while maintaining a healthy and sustainable workers' compensation system.