The WCIRB released it's quarterly summary of insurer experience on August 26th, 2010. In its report, the rating bureau illustrates the rapidly changing loss development of California based workers compensation insurers. Included in this summary are the impacts of both Ogilvie v. City and County of San Francisco, and the Almaraz v. Guzman case. The outcome of both cases is noted within the WCIRB document and highlights the potential for even poorer loss development if the impact of either or the two cases is greater than projected by the WCIRB. The results of the summary are highlighted below.
For March 31, 2010 the estimated ultimate total loss per indemnity claim for 2009 was $60,253. In 2003, the costs were $45,364.
When we review the Combined Loss Ratio, (CLR), the 2009 CLR was 116 compared to 105 in 2003. A combined ratio of 116% means that an insurer is underwriting at a loss -- for every $1 in premiums taken in, $1.16 in claims and expenses are paid out.
The average rate charged to employers per $100 of payroll has fallen from its high of $6.44 in 2003 to $2.47 in 2010.
What does all of this mean to business owners, and private equity?
When you analyze the WCIRB's data you see that rates are still at historic lows, but losses are nearing their highest level on record. We did see some small rate increases in the overall data, but the levels of increase do not appear to be substantial enough to cover the loss development and the impact of the insurer's investment returns from 2009.
We believe the financial impact to California risks will be substantial, and private equity and business owners should be prepared for the pending rate changes. You can prepare for the onslaught by considering the following:
(1) Prepare for your 2011 renewals now
(a) Get your RFP's ready
(b) Review your existing data and loss runs to try to close as many risks out as possible
(c) Review the recommended rate increases for your class codes now. (If you need to know what your individual class code rate changes will likely be in 2011, send me an email and we can provide you with a pdf with all the proposed rate changes). Some classifications have recommended rate increases north of 29 percent with 50 classes seeing 50% or more increases.
(2) Estimate your 2011 experience modifier to see what the new mod will be. (Remember, if your mod increases, you will face an even steeper increase than the recommended 29.6%).
(3) Consider your broker's effectiveness in your experience modification management program. If the mod has continued to stay at or above the average Ca mod of .92, you may wish to consider the financial impact of retaining their services.
With the hardening of the market, it is time to make the necessary changes and tough decisions to keep EBITDA at or above your targets. Your experience mod and workers compensation program will certainly begin having an impact.
If I can help, please send me a note to firstname.lastname@example.org.