Over the last two weeks, many articles have appeared in the workers' comp blogosphere where a public actuary disagreed with the Workers' Compensation Insurance Rating Bureau over rate decreases versus rate increases.

James Moore

I have been writing articles since 2008 on why the rating bureau rates debate means little to the final policy premiums paid by employers. Let us look at why.

Simple, main reason

One can call them loss cost multipliers, deviated rates, filed rates and many other terms that mean the same thing. How do these rates work? Each carrier in each state in which it writes workers' comp coverage confers with its underwriting and actuarial departments for projections on what policy rates will result in some type of profit.

If the pure premium rates or base rates are not sufficient for the carrier to operate in the state, the carrier will adjust the rates up or down depending on the desired level of profit and marketability of that rate.

The large carriers may have 50 or more subsidiary carriers that may all file their own deviations from the recommended rates.

The final figures are then filed with each state’s insurance commissioner. These rates will differ from the rating bureau rates by sometimes up to 250%, such as with one carrier in California that will remain nameless here.

Rating bureau rates vs. filed rates

A link to the California carrier published filed rates is here. 

Most of the time, the insurance commissioner’s office will approve the LCMs “as filed” with very few refusals. The LCMs may allow each classification code to deviate a certain percentage from the rating bureau rates. The carriers may also do a blanket increase or decrease (usually increase) for all classification codes from the bureau rates.

This is a passage from California Insurance Commissioner Ricardo Lara’s press release (example from 2022):

The recommended rate is based on insurance companies’ cost data. The pure premium rate is only advisory, as the state Legislature has not given the commissioner rate setting authority over workers’ compensation rates. The average advisory pure premium rate level of $1.45 approved by the commissioner is about 18% lower than the industry-filed average pure premium rate of $1.77 as of Jan. 1, 2022.

This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.