2009 Workers’ Comp Rate Increase Disaster
On Thursday, June 4, CDTOA received a detailed email letter from State Compensation Insurance Fund or SCIF (below) informing us that our workers’ compensation insurance base rates here in the Golden State weren’t just going up 15% as the earlier SCIF news bulletins deceptively announced. This new letter indicated that the base rate increases for all class codes are going up an average of 15% and that our particular group “base rates were increasing by 25 percent or more”.
I read the letter and immediately called SCIF to uncover exactly what “25% or more” actually meant. To my shock and horror I was informed that for the majority of companies in our group who have employees listed under 7290 local trucking class code, the base rate would increase by 39%, it was jumping from $13.84/$100 to $19.26. Those in the group with payroll under the 8232 – building material dealers code will see a 50% base rate increase, soaring from a $14.22 base rate to $21.26. We’re not alone; all class codes within the construction industry are being hit with increases ranging for 25% to 54%. It feels like 2002-03 all over again, the difference is that we weren’t in a brutal recession than!
The following are the new rate increases for trucking and building material dealers, the two prevailing class codes in the CDTOA SCIF Group are 7290 (trucking) which includes SCIF’s special trucking sub-class code 7219 (trucking local) and 8232 (building material dealers). Here’s a look at the base rate changes
| Class Code | Rate 1/1/08 | Rate 7/1/09 | Percent Increase | Peak Rate of 2003-04 |
| 7219 (TRK) | $16.47 | $22.66 | 38% | $36.83 |
| 7290 (TRK200) | $13.84 | $19.26 | 39% | $31.31 |
| 8232 (BMD) | $14.22 | $21.26 | 50% | $29.90 |
CDTOA has been very vocal over the years regarding how well the CDTOA SCIF Group (919) has preformed. Our members seem to really get it as far as the importance of safety in their operations. Above we have attached a copy of the SCIF Group’s five year loss history; the group’s total combined incurred loss ratio is just under 27%, and just 4% through 8 months of this policy year. In terms of a profitable book of business within a risky industry – we have to believe there aren’t many like us. When we share this loss information with our members in the group, no one seems to understand why rates should even go up – period. We can’t explain it and the 12% annual medical cost increases the insurance industry seems to be promoting is not believable. We’ve asked SCIF countless times to share all their groups and non-groups loss history – for our class codes. You don’t have to be a math major to figure out that these rate increases do not make any sense.
– To see CDTOA Workers’ Comp group Loss History (Read More)
In the era of new government and business transparency President Obama is now promoting, why SCIF can’t “for some reason” divulge what other SCIF trucking group loss ratios are – is – well not very transparent. It’s not like we need names and claims, it’s almost the opposite of transparency – its total obfuscation. We’re inclined to petition SCIF to increase the group discount to at least 12% or the department of insurance/WCIRB to create a new standard classification for our industry “Trucking Local Construction.” We know of another group made up of mostly construction transportation companies and their three year loss ratio is 38%. We need some real answers and some reasonable options.
Below are two emails from SCIF and below that a variety of recent comp related news articles. The first SCIF email contains a link: http://www.scif.com/pdf/SampleLetter7-09NonSchedule.pdf which is a copy of a letter that will or has gone out to those within our SCIF Group 919. You will notice that in this letter, the base rate average increase is stated to be 26%. The second email below from SCIF helps to clarify the actual base rate increases for our group and the reasons for the increases. I have also included a series of articles concerning these base rate increases here, and a few stories about workers’ comp issues in other states for comparison sake.
I had to laugh when I was reading some of these news releases; I noticed that business friendly states like Arizona, Texas and Florida are all doing what they can for employers. In Florida, they are rolling back an April 1 increase by 6.5%, saving Florida employers millions of dollars. In Arizona, their still paying dividends ($10 million) back to employers. In Texas, the legislature just passed a bill that makes it illegal for lawyers, chiropractors and other health professionals to solicit victims of auto accidents or catastrophes by telephone or in person. Now how come every state around us understands that without a strong business community there is very little hope!
So, as we suffer from a record state budget deficit – $24-bilion, record unemployment 11+%, the worst construction market since at least the Great Depression and a trucking industry struggling with worthless equipment and $73+/gal. oil prices, we are now supposed to swallow a double digit workers’ comp increase. This just may finish any of whose left – off. Oh, I forgot to add deflation, most construction work here seems to be bidding 30-50% under the engineers’ estimates! Deflation is a result of businesses dropping prices in a desperate attempt to get people to buy their products or win a construction project.
Lee Brown – CDTOA Executive Director
SCIF EMAIL
From: State Fund Communication [mailto:StateFundCommunication@scif.com]
Sent: Thursday, June 04, 2009 3:44 PM
To: Lee Brown
Subject: Policyholder Notification of Rate Increase
June 4, 2009
Dear Association Partner:
State Fund has filed for a 15 percent rate increase, effective July 1, 2009. The primary driver for this increase is medical inflation, which has increased 16 percent annually for the past three years. The rate change represents the average increase across all classifications; while rates for some classifications may increase some will be lower than the average. State Fund continues to offer the many discounts and rate credits available in our pricing structure–including up to a 40 percent discount on qualifying merit rated accounts. By taking a long-term approach to pricing State Fund will continue to be a vital resource for workers’ in California now and in the future.
While our filed increase is lower than the 23.7 percent recommended by the WCIRB, some individual classifications will have increases of 25 percent or more over their July 1, 2008 levels. To comply with Insurance Code regulations, we are providing written notice to policyholders in the affected governing classes. There are two versions of the notification letters: one letter is for policyholders who have a schedule as their governing class, and one is for those with individual governing classifications. The letters can be viewed at the following links.
http://www.scif.com/pdf/SampleLetter7-09Schedule.pdf
http://www.scif.com/pdf/SampleLetter7-09NonSchedule.pdf
Regards,
Lauren Mayfield
Lauren Mayfield
Senior Vice President of Marketing
From: SCIF Groups
Sent: Monday, June 08, 2009 1:39 PM
To: Lee Brown
Subject: RE: Policyholder Notification of Rate Increase
CDTOA,
The first sample letter/schedule does not pertain to you as your Association is not part of a schedule. Your members will receive the second letter.
We in Group Programs have been asking that Home Office send our Association Directors more information regarding State Fund decisions, procedures, updates etc in an effort to keep our Group Directors better informed. That is why you received the e-mail from Lauren Mayfield.
The classification of your Group have had an average increase of over 25% since January 2008, therefore your members will receive a letter like the second sample. The sample letter was sent to you in an effort to inform you as to what has occurred in case you receive calls from your members.
Looking back at the specific classifications for your group there was a steady rate increase for your Group classifications from 2001- 2004. Then Workers Compensation Reform started and the rates for your group went down each year from 2005 thru 2008.
Unfortunately rates have increased twice effective January 1, 2009.
In January 1, 2009 the Workers Compensation Insurance Rating Bureau (WCIRB) recommended a 16% average rate increase. State Fund took an average of 8.9%. July 1, 2009 – the WCIRB recommended a 26% average rate increase, State Fund took a 15% average rate increase.
The Base Rates for your individual Group classifications effective July 1, 2009 are as follows:
7290 – $19.26
7219 – $22.66
8232 – $21.26
Remember these are the “Base Rates”. All available discounts will be offered to your members who are eligible to receive them. Those discounts include the merit rating discount, claims free discount, premium discount and of course your Group discount.
Per the letter the principal driver for these rate increases is the increase in medical inflation. Over the past three years medical costs have risen an average of 12% per year. Claims costs have also gone up annually since 2005. Although claims costs have gone up since 2005, workers compensation insurance rates have dropped each of those years.
It is important that State Fund makes financially responsible decisions and although we did not adhere to the Rating Bureau’s recommended average rate hikes we have had to raise the base rates for employers in your industry. There is no doubt that in this will impact all of us.
To try to put this in perspective I wanted to note that when looking at the history of your Group Classifications the July 1, 2009 Base Rates are close to the Base Rates for your Group back in 2005:
| Effective January 1, 2005 – June 30, 2005 | Effective July 1, 2005 |
| 7290 – $23.22 | 7290 – $21.12 |
| 7219 – $27.32 | 7219 – $24.85 |
| 8232 – $22.46 | 8232 – $20.46 |
Nobody likes to see prices rise, especially in this economy. With the medical costs rising consistently over the past three years and the fact that rates have dropped every year since 2005 it is my opinion that it was only a matter of time for insurance companies to start to make corrections in their rates. It is my feeling that the correction has finally started.
Please call me if you have additional questions.
___________________________
KEY INDUSTRY STORIES
Employers Direct Leads Rate Hikes with 33.9% Filing
Employers Direct Insurance Co. filed for a whopping average 33.9% base rate workers’ comp insurance increase earlier this month, easily leading the pack of insurers filing for mid-year rate increases, according to the Department of Insurance website. The Agoura Hills-based company, which entered the California market with $50 million in start-up capital at the height of the state’s workers’ compensation insurance crisis in 2002, was recently purchased by Alleghany Corp. for $192.5 million. The company is unique in that it sells policies to employers directly via the Internet rather than using a network of independent agents avoiding the expense of broker commissions.
Other rate filings:
- CompWest Insurance Co., 7.5% increase through a change in loss-cost multipliers.
- Seven insurers in the Travelers Group, 13% increase through revised loss-cost multipliers.
- Six insurers in the Zurich North America group, 4.5% to 5.1% increases through revised rule.
- Zenith Insurance Co., 4% increase in pure premium rates.
- Liberty Mutual Group, 10% increase through revised pure premium rates.
- Fidelity and Guaranty Insurance Underwriters, 15.5% increase through revised loss-cost multipliers.
- U.S. Fidelity and Guaranty, 5% increase through revised loss-costs multipliers.
- Employers Compensation Insurance Co., 10.5% increase through revised pure premium rates.
- Nipponkoa Insurance Co., 13% increase through revised loss-cost multipliers.
The WCIRB recommended a 23.7% increase in the pure premium rate, but Insurance Commissioner Steve Poizner has not yet acted. A second public hearing on the proposal was scheduled for June 8 in Sacramento. It will be able to view the hearings on-line Monday the 8th.
California
Workers’ comp insurance costs about to jump
Most carriers plan rate increases some large
Five years after California reined in skyrocketing workers’ compensation insurance rates, employers here are facing another round of rate increases, blamed largely on rising medical costs.
Following a number of suggested rate increases by the Workers’ Compensation Insurance Rating Bureau (WCIRB), over a dozen workers’ comp insurers over the past two months have notified the state of their intention to raise their workers’ comp rates by 4% to 33.9%.
In Sacramento on Monday, June, 8 the WCIRB, an advisory panel largely composed of insurance representatives, present its case for lifting a statewide benchmark for insurance rates by 23.7 percent – the biggest jump in 30 years.
California Insurance Commissioner Steve Poizner has signaled that he is skeptical of the panel’s request, especially since a recent audit showed that between 2003 and 2006 the bureau – which makes recommendations on the benchmark rate twice a year – repeatedly asked for rate increases that were not justified by market conditions.
“We must carefully scrutinize all the data involved in making this decision to ensure that any change in the benchmark is warranted,” Poizner said last week. “Every additional dollar spent on workers’ compensation insurance is a dollar that an employer cannot use to save or create a job. In this economy, when many small businesses are barely staying afloat, an unnecessary rate hike can mean the difference between survival and going out of business.”
Even if the increases are approved, rates will still be lower than they were during the workers’ compensation crisis of 2003, when soaring rates threatened to cripple California companies and helped lead to the recall of Gov. Gray Davis.
Currently, California employers pay an average of $2.25 per $100 of payroll for all classes of workers’ from clerical to roofer. If this rate was increased by 23.7 percent (WCIRB’s recommendations), it would increase to $2.78, less than half the $6.45 average rate in 2003. But for industries like trucking and construction, already suffering from their worst downturn since the great depression, comp rates are slated to rise by percentages that push the base rates closer to the record highs of 2003, prior to industry reforms. For instance, the standard trucking class code (7219) will increase from the January 1, 2008 rate of $16.47 to $22.66 on July 1, a 38% increase. The July 1, 2003 record 7219 truck rate at SCIF was $36.83, so the new rates are still 38% less than the peak rate for at least this class code.
But the specter of rising rates could not come at a worse time for employers suffering through the worst recession in 70 years. Unlike in the healthier economy of 2003, they say, they are increasingly ill-equipped to cope with a large jump in comp insurance costs.
“Back then, we could absorb the rate increases better because we were so busy,” said Bill Hawes, operations manager at Bill Howe Plumbing in San Diego. “But now, with business down 20% and bids down as much as project 40% of the estimates, the last thing you need is to have one of your fixed costs rising by 10 or 15 percent.”
Robert Mike, president of the WCIRB, said he is sympathetic to the effect that the rate increase might have on California businesses, “particularly during a period of widespread economic turmoil.” But he said medical costs are growing at their fastest rate in a decade. The bureau’s rate filing shows that between 2005 and 2007 – the latest period for comprehensive data – the cost of surgery rose 19%; medicine climb 16%; and radiology fees increased 9%.
The WCIRB is requesting a 16.9% rate increase related to medical expenses and 5.8% related to a recent court decision that gives workers greater latitude to appeal when their claims are denied or curtailed.
Poizner said the latter portion is premature, since the court decision is under appeal and it is unclear when, if ever, it will come into force. He also is asking the insurers to double-check their figures on the rise in medical costs.
If the past is any indication, Poizner will probably whittle down the bureau’s proposal. Last fall, it recommended a 16% increase in the benchmark rate, but Poizner raised it only 5%.
In the meantime, insurers are pushing to raise their own rates regardless of what the WCIRB suggest or what Poizner eventually approves.
The biggest proposed rate increase comes from Employers Direct Insurance Co., a workers’ comp specialist in Agoura Hills. Last month, Employers Direct asked for a 33.9% increase in its rate after incurring $60.9 million in underwriting losses during 2008 and an additional $6.6 million during the first quarter of this year.
Financial reports from the insurer’s parent company, Alleghany Corp., said the losses resulted from “a significant acceleration” in insurance claims from injured workers and higher-than-anticipated increases in the severity of the claims.
“Looking forward, management is taking action to strengthen the claims department, and to increase prices wherever possible,” Alleghany said in its annual report. “We believe that the current pricing structure of California workers’ compensation is not sustainable over the long term, and that others will increase prices in response to accelerating claims costs.”
The Employers Direct rate increase is by far the highest that has been filed at the Insurance Department this year. Other filings include a request from Employers Compensation Insurance for a 10.5% increase; Cypress and Oak River, 10.3%; and Netherlands and Peerless, 10%.
A number of insurers are asking for much lower increases. Zenith Insurance in Woodland Hills, for instance, is asking for a 4% increase. Zenith’s net income dropped from $41.9 million during the first quarter of last year to $2.6 million this year. Zenith Chairman Stanley Zax said the company continues to have “excellent” loss ratios on its workers’ compensation claims. Zenith’s financial reports say the number of claims filed by injured workers has continued to be relatively low, though not quite as low as it was immediately after the reforms of 2003 and 2004.
Nevertheless, income is falling, partly because competition drove premiums to bargain-basement lows last year and partly because the recession is putting many employers out of business. At the same time, costs of workers’ compensation claims are rising, more because of medical expenses than a rise in claims.
“Because medical expenses now constitute about 60% of total workers’ compensation benefits, long-term medical inflation is a major contributor to (the upward trend in the costs),” Zenith said in its annual report. “Health care reform in Washington, D.C., or in California, if it occurs, may impact this trend.”
Florida
State Workers’ Comp Increase Rolled Back
A reduction in the workers’ compensation rate is expected to save Florida employers hundreds of million on their premiums after it goes into effect July 1.
TALLAHASSEE – Florida’s insurance commissioner on Wednesday said he is rolling back a 6.4 percent workers’ compensation rate increase that went into effect April 1.
Commissioner Kevin McCarty said he is taking back the increase because of a new law that reverses a Florida Supreme Court ruling and reinstates caps on fees for lawyers who represent workers in compensation appeals for on-the-job injuries.
The reduction is expected to save Florida employers $172 million on their workers’ compensation premiums after it goes into effect July 1 for new business and renewals.
McCarty acted just five days after Gov. Charlie Crist signed the new legislation into law. McCarty had approved the rate increase because of the high court’s ruling.
The justices struck down the fee limits in a 2003 law, saying they were unreasonable. The new law repeals another provision in the 2003 statute that also required the fees to be “reasonable.’” “I believe that injured workers still will have appropriate access to the legal system while also keeping workers’ compensation rates affordable for employers,” McCarty said in announcing the rollback.
Trial lawyers, who opposed the new law, disagree. They say the fee caps will make it difficult for injured workers to find legal representation.
Paul Anderson, a board member for the trial lawyer group Florida Justice Association, has predicted more workers will be denied claims and will turn to taxpayer-supported public assistance programs to cover their medical expenses. He said the new law eventually will result in another legal challenge.
McCarty credited the 2003 law for reductions in workers’ compensation rates totaling more than 60 percent since it was enacted. Before then, Florida’s rates were the highest or second-highest in the nation. Since then, they’ve since dropped out of the top 10 rankings.
Canceling the 6.4 percent increase effectively restores an 18.6 percent reduction that went into effect Jan. 1, which is expected to save employers $610 million. It was the sixth consecutive rate reduction since the 2003 law went on the books.
The Supreme Court made its ruling in the case of an injured nurse who won $3,244 in back wages and medical expenses with the help of a lawyer whose fee was limited to about $8 an hour while insurance company attorneys on the other side got $150 an hour. The justices found that discrepancy unreasonable.
Arizona
SCF’s Board of Directors Approves a $10 million Dividend for 2008 to Qualified Policyholders
Phoenix – “We are pleased to be able to return $10 million to Arizona’s economy, particularly in times like these,” said SCF Board Chair Judith Patrick. “We believe returning $10 million to our policyholders who qualify by keeping their workplaces safe will provide a boost to them and to the Arizona economy.”
SCF Arizona President & CEO Don Smith noted the dividend payout marks 38 straight years the state’s largest workers’ compensation provider has been able to return money to policyholders. Dividend amounts paid to qualified policyholders are based on annual premium and incurred losses (claims).
Smith said that Arizona continues to be a safer place for workers, and workplace injury claims have been cut in half during the past decade, but the cost of treating those injuries continues to increase.
“It’s a credit to our entire organization and our Board that through our attention to quality claims management and our efforts to keep premiums among the lowest in the nation, that we are able to provide this stimulus to many of our deserving policyholders,” Smith said.
“Dividends are never guaranteed,” Smith added. “The Board bases its decision on SCF’s financial performance for the year and conditions in the marketplace.
“We congratulate all of our policyholders that will qualify for a dividend,” Smith said. “They have done so by keeping their workplaces safe and through good management practices.”
About SCF AZ: SCF Arizona is the state’s largest workers’ compensation insurer, serving more than 42,000 businesses and more than 700,000 employees statewide. SCF has operated in Arizona for more than 80 years, holds $3.4 billion in assets and employs more than 500 people. SCF is headquartered in Phoenix and has offices in Flagstaff, Lake Havasu City, Prescott, Show Low, Tucson and Yuma.
Texas
Lawmakers Look to Curtail Ambulance Chasers
Austin – Texas lawmakers took a huge step on June 2, 2009 in curtailing the activities of today’s ambulance chasers by passing HB 148. The bill, now on its way to Governor Rick Perry for signature, makes it illegal for lawyers, chiropractors and other health professionals to solicit victims of auto accidents or catastrophes by telephone or in person.
The bill was targeted at telemarketers who contact crash victims by buying accident reports from local police departments. The crash victims are often informed they need to visit a certain chiropractor whether they have been injured or not. While awaiting care, the crash victims are solicited by lawyers or people representing law firms who claim the victims will receive free legal advice.
“It’s all a scam for a very small number of chiropractors, lawyers and others who are out to get as much as they can from an individual’s insurance claim,” says Dennis Devlin, chairman of the Texas Committee on Insurance Fraud. “We owe the bill’s sponsors, Rep. Todd Smith and Sen. Jeff Wentworth, huge praise for passage of this legislation that will curtail this ongoing trail of lies, deception and outright theft.”
Devlin said passage of this legislation was unique in that the insurance industry, the Texas Chiropractor Association and the Texas Trial Lawyers Association all worked together to ensure the its passage.
If convicted, the solicitors would face a Class A misdemeanor for the first offense, but the penalty would increase for any additional convictions. Upon the Governor’s signature, the bill will take affect September 1, 2009.
