Where is the California Workers Comp market going?……..Who knows.  We are experiencing a little hardening in some of our pricing.  Every quarter it seems like there are less and less crazy pricing to have to compete with.  The latest “what the …” are some $1,000 deductible programs in the market.  Another source that monitors and tracks pricing is the Rand Corporation.  They reported that the California market will remain vulnerable to wide swings in performance unless changes are made to improve the predictability of costs, transparency of pricing decisions, regulatory oversight and consistency of the incentives facing different parties.

In 1995, the California legislature allowed state insurers far greater flexibility in setting rates for workers’ compensation insurance. This deregulation resulted in greater volatility. Insurer profits dropped dramatically during the second half of the 1990s, and 31 insurers out of the roughly 250 insurers who wrote these policies in the state failed.  Rand recently completed a study that identified six key factors that contributed to the insolvencies and volatility over the past 15 years:

• Inaccurate projections of claim costs
• Pricing workers’ compensation policies below expected costs
• Reinsurance contracts that give insurers and reinsurers insufficient stake in the profitability of the policies
• Managing general agents who have little financial interest in the ultimate profitability of policies
• Under-reserving for claim costs by insurers
• Insurer policyholder surplus that is inadequate to provide a cushion against adverse events.

Rand further made 29 recommendations aimed to increase the predictability of workers’ compensation costs, enhance the transparency of the system, better align the incentives of the major players and improve the California Department of Insurance’s oversight.  Bottom line is that for their to be stability in pricing compliance and oversight are key factors.