Rate reductions news published by a state rating bureau or NCCI is always a very positive statement in an industry led by negativity.
The rate reduction news is then re-published over and over again by various Workers Comp outlets. There is still one piece of the puzzle that is lacking in the positive news.
Rate reductions are basically where a rating bureau analyzes actuarial data and subsequently publishes lower advisory or recommended rates for some or all of a state’s classification codes.
The buzz now is that California’s WCIRB (rating bureau) has recommended a 10.2% rate reduction which may seem contrary to the veiled WC crisis the state has been experiencing for the last seven years.
What does the reduction in advisory rates mean? – actually not much or even nothing. I have written in this blog many times concerning (and there are many confusing terms) deviated rates or Loss Cost Multipliers that are filed by each carrier. There are some that are over 300% of the actual advisory rates.
In very simplified terms, an insurance carrier can negate an advisory rate by filing a rate increase that matches the rate decrease. If I am ABC WC Insurance Company and I do not wish to decrease my insurance rates, I will change my deviated rate to match the decrease.
This situation does not happen that often. However, this situation has happened even more severely as a major carrier increased their deviated rate extensively last year in CA. Insurance carriers do have a team of actuaries that produce their own numbers that may not agree with the actuaries at the rating bureaus.
The insurance carriers are going to apply their own rates to remain profitable.
I will provide an example with numbers next week. I try to keep most articles to 300 words or less and this one is getting a little long to read.
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