Premium Increases on the Horizon for California Workers’ Comp

Several issues have arisen in California that will have a significant impact on workers’ compensation costs over the next few years, and will almost certainly drive premium costs up for most employers. These issues could increase premiums by double digits and may force some insurance providers to evaluate the feasibility of their programs in California.

There are essentially three major factors that have occurred in the last year that will affect workers’ compensation rates. To begin with, the Workers’ Compensation Insurance Rating Bureau (WCIRB) changed the methodology for calculating the experience modification for businesses. The experience modification adjusts the premium for a business upwards if the business has excessive injuries and downward if the business has a low number of workrelated injuries. Prior to 2010, the experience modification was based primarily on the dollar cost of injuries. A business with a large number of minor injuries with a low dollar cost could still have a favorable experience modification. This year, the WCIRB changed the way it calculates the experience modification. Recognizing that minimizing the number of worker injuries is just as important as keeping the cost of injuries down, experience modifications are now higher for firms that have large numbers of claims, regardless of the actual size of the claims. A higher experience modification is the first factor that will cause workers’ compensation premiums to increase for business firms.

The second factor that will have a significant impact is rising medical costs. Among many aspects that have contributed to increasing expenses in the workers’ compensation system, medical costs are the primary reason for increasing costs over the last few years. Large increases in medical costs, combined with other issues, has forced the WCIRB to announce it will recommend increasing workers’ compensation rates by almost 30 percent. The WCIRB establishes base rates that the insurance industry uses to calculate their rates. Although insurance companies will vary their rates from those published by the WCIRB, most insurance companies will use rates very close to those published by the WCIRB. With this in mind, it’s likely that most insurance carriers will file large increases in their rates in the near future. 

The third factor that will impact premiums is a recent determination by the courts to uphold a decision by the Workers’ Compensation Appeals Board. As a result of the ruling, premiums for workers’ compensation coverage are expected to increase about 6 percent, based on estimates by the WCIRB.

The “Guzman” case involved issues related to the major workers’ compensation reforms that were instituted in 2003. At that time, guidelines for the evaluation of permanent disabilities were developed to assist physicians dealing with serious injuries. This was done to limit the number and size of permanent disability cases. However, the Guzman ruling allows doctors to expand permanent disability beyond the interpretation of the original intent of the reforms. As a result of the Guzman ruling, permanent disability awards will be larger than originally envisioned. The ruling will only have an impact on permanent disability injuries, but even so the impact is expected to increase total injury costs by a significant amount. To offset the increase in costs, the WCIRB projects overall premiums to increase about 5.8 percent.

The combination of all three of these factors will increase workers’ compensation rates significantly over the next couple of years. Although employers have little impact on the rates, there are a number of things that businesses can do to help manage their worker’s compensation premium costs. 

Western Growers members can offset these rising costs by:

1. Reducing work injuries;
2. Managing worker’s compensation claims after they occur;
3. Seeking competitive workers’ compensation rates;
4. Evaluating other workers’ compensation options such as captive insurance.

If you are interested in reviewing your workers’ compensation program, Western Growers Insurance Services can provide you with multiple options for dealing with your workers’ compensation needs. Please contact Greg Nelson, director of commercial lines at (949) 885-2287 or gnelson@wga.com for more information.