California 8.7% rate hike due to worker-friendly legal environment

California’s first increase since 2015 in the workers compensation pure premium advisory rate is due to several nuances in the state, experts say, including more ready acceptance of so-called “cumulative trauma” claims.

The 8.7% increase, approved by the insurance commissioner, was announced July 14 by the Workers’ Compensation Insurance Rating Bureau and is set to take effect Sept. 1. The WCIRB recommended an 11.2% hike, citing increases in medical loss development and medical costs in 2024, along with a rise in claim frequency and a related increase in allocated loss adjustment expenses. The lower figure was based on differences in projections.

While workers compensation rates elsewhere in the country remain flat or have continued to decline, California is an outlier: Experts say the state should have been raising rates in recent years as combined ratios have climbed because of rising claim costs.

Legal costs in the state have increased because of a rise in the medical-legal fee schedule. Cumulative trauma represents 24% of claims, according to the WCIRB. Those typically are litigated and involve multiple medical specialties and body parts.

“The biggest factor that comes to mind is (California’s) treatment of cumulative trauma claims, and really their widespread acceptance of such claims,” said Christine Williams, managing director of the Worker’s Compensation Center of Excellence at Marsh LLC, adding that a rate increase is unlikely elsewhere.

Cumulative trauma claims tend to be among the most costly and complicated, said Jeff Adelson, a partner and general counsel with Irvine, California-based law firm Bober, Peterson & Koby LLP. Legal squabbling can go on “for years,” he said, as some claims tend to involve more than one comp insurer, with injuries from a lifetime of work for multiple employers piling up.

“And so they are extremely costly,” he said. “Some (claims) never close.”

A pro-worker legal environment in California is also an issue, experts say.

California “has an entire framework around (cumulative trauma) claims that is very worker-friendly,” said Brandi Underhill, technical intelligence and emerging risk practice leader for Lockton Cos. LLC. “A lot of the other states either do not accept (cumulative trauma) claims or they do so on a very limited basis.”

Insurers “have been watching this for the past several years,” Ms. Williams said.

The WCIRB estimates a 123% combined ratio for accident year 2024, “the highest level in nearly 15 years” and surpassing what the state experienced before implementing cost-cutting reforms in 2013, according to a July 15 statement from California Insurance Commissioner Ricardo Lara on justifying the increase.

Insurance Department actuary Serina Wu wrote in paperwork that the increase “is primarily attributed to higher projected medical loss development for more recent accident years, driven by continued growth in the cost of medical services — including physical medicine, rehabilitation and medical-legal services — which typically occur within the initial years following a claim.”

It’s unlikely for such a rate increase to spread to other states, according to Donna Glenn, Boca Raton, Florida-based chief actuary for the National Council on Compensation Insurance, which does not provide rate-making services for California but follows countrywide comp issues.

“A point we’ve emphasized in recent years … every state has a story,” she said in an email. “We’re aware that there are unique challenges facing the California workers compensation market, including increasing loss development patterns, higher medical costs, increasing frequency of cumulative trauma claims, and rising costs associated with loss adjustment expense. To date, we have not observed comparable trends in states where NCCI operates.”