Reflections on California’s Charged Premium Changes

The most recent actuarial report out of the Workers’ Compensation Insurance Rating Board (“WCIRB”) dropped recently with some interesting results. As the rating bureau for the State of California, the WCIRB creates all rules, collects data and sets advisory loss costs. The most meaningful data point to the author of this report is the slight increase in California charged premiums, from an average of $1.60 per $100 of payroll to $1.63.

According to the WCIRB, “Prior to 2024, the average charged rate had been declining steadily, reaching a historical low in 2023. The preliminary average charged rate for 2024 (based on six months) is 2% higher than 2023, suggesting the recent rate declines are flattening. In the September 1, 2024 Pure Premium Rate Filing, the WCIRB proposed an average 0.9% increase in advisory pure premium rates. In the Filing Decision, the Insurance Commissioner approved an average 2.1% decrease in advisory pure premium rates.”.

So, for the last decade, charged rates dropped in half from $3.19 in 2014 to year end $1.60 at the end of 2023. Over the last five years, inflationary pressures with medical indemnity were neutralized by the pandemic and wage inflation. If rates keep going up and rates keep going down, something must give. The accident year profitability shows the market deteriorating rapidly to times when rates were much higher. Specifically, in 2014 the combined ratio was 32 points less than last year as shown below.

As discussed in a recent post regarding trends of this nature in Florida, rates in my mind are hitting a turning point going into 2025 and I expect the pendulum to swing.

For those with heavy portfolios in California, while I see no immediate relief to the “hyper-soft” marketplace for workers’ compensation. It will be a very dynamic market to watch for sure. I expect to see carrier strategy change as the actuaries spread the impact of these deteriorating results on their portfolios. For those on large deductible programs and are pricing business themselves, make sure you have the proper tools and data to trend results going forward for pricing purposes.

Author: Paul Hughes

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WCIRB Quarterly Experience Report

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