Author, Rory Anderson, Account Executive, Rancho Mesa Insurance Services, Inc.

In California, each workers’ compensation insurance company has its own set of base rates for each class of business. In order to come up with their base rate for each class code, the insurance carrier applies their Loss Cost Multiplier (LCM) to the Workers’ Compensation Insurance Rating Bureau’s (WCIRB) pure premium rates.

Pure premium rates are determined by the WCIRB and include the loss cost of claims for that particular class of business. Those costs include:

• The cost of the claim itself (i.e., indemnity, medical and expense payments)

• Loss adjustment expenses  

• Future loss adjustment expenses (e.g., fees for expert witnesses and salary/overhead for outside legal counsel)

A pure premium rate reflects the amount of losses that an insurance carrier can expect to pay out in claims for that class of business. Every 6 months, the WCIRB submits pure premium rates to the California Department of Insurance for approval. These pure premium rates are based on loss and payroll data submitted to the WCIRB by all the insurance companies in California.

A carrier’s LCM will include those additional expenses separate of the pure premium rate considerations. These would include a carrier’s:

• General overhead expenses (e.g., rent, payroll, employee benefits, etc.)

• Sales and Marketing

• Taxes, licenses and fees

• Profit

The 2021 pure premium rate in the tree care industry (class code 0106) has increased to $10.50 per $100 in payroll, which is roughly a 3.5% increase from last year’s $10.15. This means that the overall workers’ compensation claim activity in the tree care industry is up about 3.5%, and the WCIRB is recommending that workers’ compensation insurance carriers increase their base rates to address this change.

As a tree care professional, what can your company do to prepare for this change and mitigate the impact to your business? Reviewing your claims experience, benchmarking your company with the tree care industry, looking for root causes of the claims, and then implementing best practices safety trainings will go a long way in providing you a path to insulate you from future changes like these.

As part of our proprietary TreeOne™ program, we have created a Key Performance Indicator (KPI) dashboard for the tree care industry that puts this information at your fingertips. To see how you compare with your peers, request the KPI Dashboard for your company.

For more information on rising pure premium rates, contact me at (619) 486-6437 or randerson@ranchomesa.com.