California’s insurance commissioner has approved a 3.4% reduction in the average workers’ compensation benchmark rate as of Sept. 1, 2021.
Ricardo Lara decided to order a rate decrease despite the fact that the Workers’ Compensation Insurance Rating Bureau, the state’s rate-making agency, had recommended that the average benchmark rate be increased 2.7%.
The 3.4% reduction is an average across all of California’s 500-plus class codes. The benchmark rate – also known as the pure premium rate – is a base rate that carriers can use as a guidepost to price their policies. It is supposed to cover the cost of claims and of administering them. The benchmark rate is voluntary and carriers can choose to use it or not when pricing their policies.
Companies with higher claims experience may not see a reduction, and some industries too may see additional surcharges.
The rate reduction applies to all policies incepting on or after Sept. 1. The change will reduce the average benchmark rate by $.05 to $1.41 per $100 of payroll for workers’ compensation insurance. That’s compared with the industry-filed average pure premium rate of $1.86 as of Jan. 1.
COVID-19
The average pure premium rate does not include any provision for the estimated cost of the COVID-19 claims that will incur during the Sept. 1, 2021 policy period. Lara ordered that any provision in the rates filed by insurers to cover the estimated costs of the COVID-19 claims, be accounted for and tracked separately.
In ordering the reduction, the commissioner noted that claims frequency continues to fall, and claims costs have largely remained stable. There was also a substantial decrease in workers’ compensation claims in 2020 as many workplaces were idled. If people aren’t working, they can’t get injured on the job.
He also noted that the Jan. 1, 2021 rate filing included a load for an expected surge in cumulative trauma claims as a result of the pandemic, and for resulting shutdowns and many people losing their jobs. Often during periods of heavy layoffs these types of post-termination claims surge.
However, a preliminary analysis of the 2020 accident year has shown that this expected surge never materialized.
The takeaway
This new rate will apply to all policies that take effect or renew on or after Sept. 1.
As always, your final rate will depend on your claims experience, your industry and what part of the state you are operating in. Not all employers will see a decrease in their rates.