Nevermind the Man Behind the Curtain, He is Not the Great and Wonderful Oz

For three years or more, the WCIRB in California has been requesting rate increases to balance an imbalance in collected work comp premium versus work comp losses in this state. These requests have not only been ignored, but the Bureau has been publicly taken to task for even asking. I believe the WCIRB has been rebuffed repeatedly on the basis that the Commissioners job is an elected position and is viewed as a political stepping stone to higher office (see past 3 commissioners). No politician is going to actually tell the consumer bad news on his watch in the hopes of gaining higher political office…..period. This practice is political suicide.

So when the WCIRB had opportunity to change the factors that effect premium (change the way they calculate experience modifications) I am sure that there was discussion on how to get more premium in the system, without the ability (denial by the DOI) to increase suggested pure premium rates. How would one go about that?  What occurred was capping primary actual losses at $7,000 which basically raised the bar substantially by reducing primary expected losses.

In one case that I recently investigated the insured suffered similar losses for the calculation period as prior years and was hit with a 26% decrease in his Primary Expected Losses this year. I found it difficult to believe that the industry in which this client works, considering the increasing medical costs, and litigation on the rise, could possibly decrease its average losses by 26%. Prior years showed a 5 to 8% deviation in this most important category. In order to flesh out my suspicions I ran an estimated mod (using Intellicomps Estimod programs 2009 edition) and, found that all things being similar but the calculation factors, that the mod decrease a staggering 18 percentage points against the actual 2011 calculation.

So basically the system, in this case,  found its way to water, and balance, by increasing the modifications by decreasing the Primary Expected Losses (which was caused by the changes to the calculation on 1/1/10). In real numbers the Primary Expected Losses (with payrolls being static) went from $205,294 on this particular client to $160,297 for the 2011 mod year.

The only solace the client can take from this is that most carriers in the state did not file for increases in rates for 1/1/11. In order to protect market share, they did nothing. They will probably all file in February or March, which is a game they have started to play in the last couple of rate cycles.

In essence, in order to maintain or decrease modifications, many California companies are going to have to do better than they have been, because an 85 mod last year is a 100 mod this year without change in average actual losses. And I know of a ton of companies that are going to very easily hit the Cal-OSHA 125 (send us some money) barrier this coming year.  Expect a call from your friends there.

So do not pay attention to the Great and Wonderful Oz that allows rate deviation, as he has become completely inconsequential to the system. The man behind the curtain is now pulling the strings. Expect more changes in the way the modification is calculated in the future, as that is the only sure thing I know of concerning Work Comp in California at this time.

If you noticed this oddity in your recent renewal, contact me and I will break down your individual situation and help you formulate a plan to reduce your modification regardless of expected changes in the system.