PCOC - Fall 2010 - (Page 21)
Looming Changes in California Workers’ Compensation: Heads Up!
By Paul Lindsay Director, Jenkins Insurance Group With opening contributions by Chris Utterback (our Leavitt Affiliate)
There have been fewer ongoing sagas in the insurance world over the last 20 years than California workers’ compensation. Open rating, rampant fraud, carrier failures, ongoing insolvency fund assessments, subsequent reform, boom economy turned bust economy, and comp carriers being a perpetual whipping for the California Department of Insurance are but a few reasons. Toss in cyclical nature of national property and casualty insurers who write California workers’ compensation for significant revenue grabs and then run for cover when results blow up … it is a wonder things are not more tenuous than they are.
We are still in this once-in-a-lifetime perfect storm of risk capacity (low insurance rates) and poor economy (low premium exposure bases), but things may be changing, at least on the risk capacity—rate—side. As usual, California workers’ compensation will probably be the national lead indicator that things are not universally well in the insurance world. The recent Worker’s Comp Executive periodical reported that the statewide 2009 year combined ratio was 118.2 percent with the State Compensation Insurance Fund ringing at 161.5 percent. Keep in mind that a carrier must operate at approximately a 95 percent combined in order to stay solvent; you can see the danger signs. Early indications from several insurance pundits suggest the possibility of a 30 percent rate hike. We note that at least one specialty comp carrier is entertaining selling out due to “terrible” second quarter results; the clouds just got darker. Mitigation and Solutions—Reducing the Impact on Your Company 1. Recognition – Like it or not, valid or invalid claims, outrageous settlements or fair ones, the results are real. As such, every prudent carrier will make moves to protect his profits and stay business. To a greater or lesser degree, rates will go up. 2. We Are in this Together – At the end of the day all employers share in each other’s premium costs. Therefore, bad employers hurt the insurance economy while good employers help it to survive. Remember, insurance is nothing more than pooling all of our money together to pay claims we hope that we will never have.
www.pcoc.org / Fall 2010
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3. Low Losses Rule – Those carriers with the lowest losses will seek the lowest rate increases. These rare carriers are those that selected their insureds carefully and priced the accounts prudently. It follows that businesses with the lowest losses will experience the smallest rate increases. 4. The Power of Numbers – Associations, trade groups and industries can pool members together for marketing power. In theory, this effective method allows us to negotiate a better deal for an insured than he might be able to get on his own. While there are exceptions to this rule, the PCOC Insurance Program, and others like it, are proof that this approach works overall. 5. Proof – Since its inception in 1989, the PCOC Insurance Program rates have dramatically trended downward. In the past 21 years, the program’s overall
Table of Contents for the Digital Edition of PCOC - Fall 2010
PCOC - Fall 2010
PCOC’s 2010 Convention and Tradeshow Highlights
Change or Be Changed by Change
Haiti Relief – More Important Than Ever
State Capitol Report
Index to Advertisers
PCOC - Fall 2010