Workers' Comp: A Review of 2013 and Trends for 2014

California continues to be the epicenter of rising workers’ compensation costs. A recent Workers’ Compensation Insurance Rating Bureau (WCIRB) report on insurer experience as of 9/30/13 confirms in part some of the conditions being encountered in the current marketplace.

What are we seeing and why?  Renewals for California workers’ compensation coverage have been wide ranging from flat, to moderate decreases, to increases as high as 20% in some cases.  One of the key differentiators and common denominators when reviewing results has been individual employer loss history.  Those employers who have successfully controlled their losses through effective safety (pre-loss) and return to work (post-loss) programs have been able to navigate with great success in reducing premiums and their total cost of risk.

As to the “why” we’re seeing these results, it remains clear that the industry continues to encounter significant challenges in California due to rising claim frequency and pure premium loss rates, a fifth straight year of underwriting losses, medical inflation, and increasing litigation. Below are a few of the key cost drivers we believe are contributing to the current environment and will remain areas to watch throughout the year:

The projected ultimate cost per indemnity (lost-time claim) is at a historic high according to the WCIRB’s report. The estimated average cost of an indemnity claim is projected to reach $85,785, which represents a $30,852 increase, or more than 50% increase, since the full implementation of the reforms that took effect in 2005.