What does the California Work Comp Rate Reduction mean?

The California Department of Insurance has approved a 9.5 % drop in work comp rates, but what does this mean for your business?

California Department of Insurance

Earlier this week there was some very good news that came out for business owners in the state of California. This news was that the California Department of Insurance approved a request by the state fund to reduce work comp rates by 9.5 percent. The rate reduction goes in to effect starting the first of September. This reduction should impact three things in the work comp market: it should cause carriers on the open market to lower their rates in competition with the state fund, it should cause other states to take notice and lower their rates when claims costs go down and it should encourage business owners in California and across the US to pay closer attention to their claims history.

Carriers in the state of California will lower their rates.

california-state-workers-comp-insuranceThis rate reduction should cause providers on the open market to reduce their rates to compete with the state fund. The State Fund insures nearly 130,000 California businesses.  It is set up as the provider of last resort for businesses in difficult to quote industries, businesses with low payroll or businesses with a less than stellar claims history. If the state fund begins to offer similar rates to those on the open market it will discourage the businesses on the open market from doing what the state fund is designed to do, which is to have high payrolls and keep claims in control. In California, like in most states, once a business is in the state fund it must stay there for a certain number of years. Typically, this is 3 years but can be 2 to 4 years in time.  This is seen as somewhat of a penalty for the actions your business took in order to get into the fund. In most cases this is because you operate in a dangerous industry or you have too many claims in a certain amount of time. The entire reason for this rate reduction is to reward the business community for lowering the claims history of the entire state. If the carriers out on the open market do not follow suit and lower their rates to compete with the state fund this reduction could cause the claims history to rise without the incentive, there to keep claims down.

Other states will take notice of how California reacted to a reduction in claims.
California is the biggest state in our country and represents the biggest market for commercial insurance.  “If California were a country, it would have the eighth-largest economy in the world.”  The actions taken by the state government of a state this big and powerful can affect the actions of other states. Over time, if this rate reduction is found to have a good affect for the Californias’ economy and it does not hurt the insurance industry, then you can expect to see other states follow suit. If the opposite occurs than you can expect states to not take the same action.

Encourage business owners to pay attention to their claims history.

Hollywood, CaliforniaThe rate reduction is being initiated because of improvements to the overall claims costs. This is encouraging news for the state and could have effects throughout the country. When the cost of claims go up, the rate in premium is almost always reflected.  It is an encouraging sign for the business community to see that the state fund taking a proactive step when claims costs go down.  This is not necessarily the typical reaction to this pattern. In theory, this should do exactly what the state fund is in place to do. That is to keep rates from rising too high and to encourage healthy behavior in businesses. When business owners see the reduction in premium they should have added incentive to continue to keep claims down. Also, for those businesses in the state fund, it should give additional incentive to fix the problem that caused your business to purchase from the fund and be able to purchase coverage out on the open market.

Golden Gate Park in San Francisco, California

 

About Mitchell Sharp

Mitchell Sharp is a Marketing Associate for the WorkersCompensationShop.com. Mitchell is a Missouri Boy and a Carolina Man who has extensive knowledge of workers compensation and cyber liability insurance. He would like to use his passion for commercial insurance, social media and digital marketing to benefit the small business community.

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