California Workers Compensation Insurance Consultant
Our firm has been actively involved with the actuarial review of workers' compensation insurance rates and loss reserves in California and other states.
In California, workers' compensation rates used by carriers are not subject to the prior approval laws and are instead subject to a file and use approach. The Workers' Compensation Insurance Rating Bureau (WCIRB) is the official rating organization in California and is responsible for, among other things, the preparation of advisory pure premium rates. The WCIRB rates have to be filed with, and approved by, the Department of Insurance before they can be used by any carrier. Insurance carriers have the option to adopt the approved WCIRB pure premium rates (with or without deviation) or to develop their own pure premium rates. Carriers load up their expenses into the pure premium rates to obtain the manual rate for each classification code.
Two general categories of workers' compensation insurance rating plans are available; guaranteed cost and loss sensitive. Under a guaranteed cost plan, the rates charged to an employer are fixed and the premium will not change based on the employer's experience during the policy year. The only factor that can increase or decrease the premium after the policy has been issued is the premium audit which takes place after the policy period has ended. On the other hand, the final premium paid by an employer under a loss sensitive plan is dependent upon the employer's loss experience during the policy period. There are three general types of loss sensitive plans; retrospective rating, large risk deductible, and dividend. Under a retrospective rating plan, the premium is adjusted after the policy ends based on the losses during the policy experience, subject to a minimum and a maximum premium. A large risk deductible plan provides for the employer to retain the portion of each claim below the deductible and the carrier insures the amount above the deductible. The carrier is still responsible for adjusting the entire claim and seeks reimbursement from the employer for the portion of each claim below the deductible. A dividend plan allows for the sharing of profits between the carrier and the employer.
Employers that meet a certain premium threshold are subject to experience rating, which is a method used to incorporate an employer's historical experience into the employer's premium. At its simplest form, experience rating works by applying an experience modification factor to the employer's premium. The experience modification factor is calculated based on the ratio of the employer's actual losses to expected losses. A factor larger than 1.0 implies that the employer's loss experience is worse than average while a factor less than 1.0 implies the opposite.
Workers' compensation insurance in California is regulated by both the Department of Insurance (DOI) and the Department of Industrial Relations (DIR) through various laws and regulations. The DOI is charged with the monitoring of policy forms, rules, rates, market conduct and carrier solvency while the DIR is charged with the monitoring of claims and the administration of claims disputes.
Give us a call to discuss how AACG can assist with your workers' compensation insurance actuarial and consulting needs.
