California's Workers' Compensation System Shows Some Signs Of Improvement

According to the California Workers' Compensation Institute (CWCI), the number of claims per $1 million of adjusted earned premium has dropped from a high of 141.7 in 1990 to 103.5 in 1994, a 27 percent decrease. Claim frequency in the fourth quarter of 1994 fell to a new low of 90.2 claims per $1 million of premium, a rate ten percent below that for the fourth quarter of 1993. California's work injury and illness rate is down as well: according to the Division of Labor Statistics and Research, the number of nonfatal work injuries and illnesses per 100 full-time workers fell from 9.8 in 1992 to 9.0 in 1993. Another sign of improvement is the continuing decline of workers' compensation insurance premium levels. The 1993 reform legislation mandated a seven-percent rate reduction for employers. The Insurance Commissioner ordered further minimum rate reductions of 12.7 percent on January 1, 1994 and 16 percent on October 1, 1994. Some observers believe that rates in the open-competition environment that began January 1, 1995 could fall fifteen percent or more below rates in effect at the end of 1994. These rate reductions are producing a corresponding decrease in total workers' compensation premium written in California. From a high of almost $9 billion in 1993, written premium fell to about $7.5 billion in 1994 with almost every insurer experiencing a decline in premium. Some industry analysts estimate that total written premium in 1995 could be less than $6 billion. The reduced premium costs have improved California's standing compared to other states when ranked based on workers' compensation premium costs. A recent study by the Oregon Department of Business and Consumer Services indicated that California employers paid, on average, the 15th-highest workers' compensation premium rates in the nation in 1994; in 1992 California's rates ranked eighth in the nation. If rates continue to decline in 1995, it is possible that California's ranking versus other states will improve even more.