Property Insurance in California Continues to be a Ticking Time Bomb

Author, Jeremy Hoolihan, Partner, Rancho Mesa Insurance Services, Inc.

Insurance industry experts and legislators continue to work with Insurance Commissioner Ricardo Lara and the California Department of Insurance (CDI) to address the overwhelming crisis in the insurance property market. On March 26th, 2024, there was a public hearing to address the crisis.

The hearing appeared to be a step in the right direction in adopting Lara’s Sustainable Insurance Strategy which is designed to restore insurance markets to competitive health by making it easier for insurers to get adequate rates and timely rate decisions. 

The hearing also brought expert commentary from Sheri Scott, a Principal and Consulting Actuary at Milliman, one of the nation’s leading actuarial firms. Scott urged the CDI to amend its regulations to include a more comprehensive reconciliation checklist. The idea is to streamline the process and ensure that insurance company filings were complete, and also to limit its evaluations to issues that could impact potential rates. Scott suggests the CDI only focus on underwriting material that has a clear impact on rates they utilize and all other non-rate related items be evaluated separately.

While this hearing had some positive points, there is still a lot of work to be done. On April 23rd, 2024, the CDI hosted a public workshop on a proposal that would allow insurers to use catastrophic loss modeling in their rate making applications. As it currently stands, California is the only state that requires insurers to base rate requests solely on their own individual losses over the last 20 years rather than projecting future losses based on analysis.

The CDI and Commissioner Lara are clearly feeling the pressure to improve and streamline the rate approval process. With the FAIR Plan exposure now at $366 billion across California ($25 billion just added in January and February), it is ill equipped to handle any major disasters. The FAIR Plan has just $700,000 in cash on hand, $200 million in surplus and about $2 billion dollars in reinsurance available. The Plan also has nearly 400,000 policy holders and are fielding over 2,000 calls a day. The CDI and Lara seem to agree that California and the FAIR Plan are a major wildfire away from needing emergency help. 

Obviously, the inability for insurance companies to have rates approved in a timely fashion has caused several insurance companies to leave California. The result is fewer insurance carrier options and in many cases having to rely on the FAIR Plan. Stay tuned for updates on the progress being made with Commissioner Lara’s Sustained Insurance Strategy.

If you have any questions about your commercial property insurance, please feel free to contact me at (619) 937-0174 or jhoolihan@ranchomesa.com.

Pure Premium and How It Impacts Your Company

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

The Workers’ Compensation Insurance Rating Bureau (WCIRB) is an agency that compiles essential data annually which determines how your Experience MOD is impacted. These factors establish the baseline average MOD of 1.00 for California companies that produce enough payroll and premium to qualify within the guidelines. These factors can change year to year and represent a key rate trend indicator for all policyholders.

There are different rates generated for different classifications based on exposure and projected losses. The premium company’s pay for workers' compensation begins with multiplying the insurer's rate for the assigned classification(s) by the payroll developed in each classification. Workers' compensation rates are applied per $100 of payroll.

Pulling directly from the WCIRB website, “The WCIRB submits advisory pure premium rates to the California Department of Insurance (CDI) for approval. Insurer rates are usually derived from the advisory pure premium rates developed by the WCIRB and approved by the Insurance Commissioner. Advisory pure premium rates, expressed as a rate per $100 of payroll, are based upon loss and payroll data submitted to the WCIRB by all insurance companies. These rates reflect the amount of losses an insurer can expect to pay in benefits due to workplace injuries as well as the cost for adjusting and settling workers' compensation claims. Pure premium rates do not account for administrative and other overhead costs that an insurer will incur and, consequently, an insurer's rates are typically higher than the pure premium rates.” (WCIRB).

Of note, new pure premium rates were just released in September. Each carrier’s individual experience with all respective class codes also has an impact on these rates. Workers’ compensation has been in a soft market for the past several years with the expectation that rates will gradually start increasing. Following the change in pure premium rates is a great indication of where the marketplace is heading an effective way to better understand future costs that your company may be expecting.

With this in mind, engaging a broker that specializes in your industry and prepares you accordingly for the renewal process is a critical step in controlling workers compensation costs. Part of this process begins with understanding pure premium rates and how they ultimately will impact your MOD, carrier base rates, and your renewal pricing.

To discuss the current market or how your XMOD is affecting your workers’ compensation premium, contact me at (619) 438-6900 or ccraig@ranchomesa.com.

California’s Workers’ Compensation Landscape May Reach a Valley in Coming Year

Author, Drew Garcia, Vice President of the Landscape Group, Rancho Mesa Insurance Services, Inc.

The workers’ compensation market for landscape companies in California has remained in a downward trend since 2015. As a result, landscape business owners have realized lower rates and subsequently aggressive premiums.

The following are some key insights to help landscape businesses prepare for their 2021 workers’ compensation insurance renewal.

For Experience MOD (XMOD) purposes, it’s important to know the Expected Loss Rate (ELR) for the landscape class code (0042) has decreased 8% over last year, $2.38 per $100.  With a lower ELR comes an adverse effect for landscape companies’ individual XMOD, as a result of lower expected losses.  Lower ELRs also drive down the primary threshold, amplifying each claim’s impact on the XMOD.  Have your 2021 XMOD projected early to identify any possible implications. 

Pure premium rates are developed by the Workers' Compensation Insurance Rating Bureau of California (WCIRB) and approved by the insurance commissioner to reflect the expected losses and loss adjustment expenses for each class code.  Insurance carriers can then use these rates to come up with their own base rates to establish premiums.  Pure premium for the landscape industry is down 8% over last year, from $5.61 to $5.14.    The WCIRB also added a $.06 surcharge for COVID-19 claim impacts for the landscape industry.  The Landscape Industry was labeled under tier 3 of 5, were the $.06 surcharge will be applied.  Other tiers such as 4, 5, and 6 saw $.012, $.18, and $.20 surcharges as it was deemed those industries have a larger exposure share to COVID claims.  In the end, with the surcharge, Pure Premium is slightly down and theoretically should lower carrier base rates.

Watch a 10-minute webinar where Drew Garcia explains the California Workers' Compensation marketplace for the landscape industry.

Areas like Los Angeles Country, Riverside County, and San Bernardino Country have had higher claims activity and claim outcomes than other parts of the state. Carriers use territory factors to more accurately align their premium for your business, depending on your location. Territory factors can either credit or debit your policy based on the location of your business or surrounding areas where you operate. For example, if you are a landscape company in Riverside County but doing business in San Diego Country, make sure you are breaking out these operations so your underwriter can accurately evaluate the correct percentage of operations in Riverside vs. San Diego.

The average base rate filed by insurance carriers for class code 0042 is $10.63, which is down 7% over last year.  Carriers determine base rates based on industry appetite, historical loss experience, pure premium rates, and overhead.  Not all carriers have an appetite for landscape business and the lowest base rate does not mean the lowest net rate.  Insurance carriers have the ability to apply “schedule rating” which is a list of criteria they file for with the California Department of Insurance to allow underwriters the ability to deviate off the price.

In 2019, the top three carriers writing workers’ compensation insurance in California by premium volume was State Fund (10.56%), Berkshire Hathaway Homestate Companies (7.12%), and Insurance Company of the West (6.94%).  Rounding out the top ten were Hartford, Travelers, AmTrust, Zurich, Chubb, Fairfax, and Employers. 

Our advice for 2021:

• Have your companies 2021 XMOD projected today, if not at least 6 months before your policy is set to renew.

• Meet with your insurance professional 120 days before renewal to determine the renewal strategy.

• If you are discussing different carrier options with your agent, ask the next level questions:

  • What other landscape companies does this carrier work with?

  • What is their rating?

  • How long have they written workers’ compensation in California?

  • Are claims handled in house or by a third party?

The numbers above indicate the perpetuation of a soft market, however, we are steadily seeing the delta of decrease shorten.  Take this information to help your company formulate your renewal strategy and impact the discussions you have with your insurance agent in 2021.

If you have questions about your workers’ compensation renewal, contact me at (619) 937-0200 or drewgarcia@ranhcomesa.com.

Update: 8868 Class Code Changes - Proposed WCIRB Changes Awaiting Public Hearing August 3rd

On August 3, 2018, the California Department of Insurance will hold a public hearing regarding the proposed changes to the 8868 Class Codes.

The proposed changes, at the recommendation of the Workers’ Compensation Insurance Rating Bureau (WCIRB), will break the 8868 class code into the following divisions:

• 8868 & 9101 – K-College Schools (Academic Professionals & Non-Academic Professionals, Respectively)

• 8869 & 9102 – Vocational Schools, Academic Professionals & Non-Academic Professionals respectively)

• 8871 – Supplemental Education

• 8872 – Social Services

• 8873 – Training or Day Programs for Adults

• 8874 – Special Education Services for Children & Youth

• 8876 – Community Based Adult Services

These changes, if approved, could have a significant impact on California businesses. A recent article by the Workers’ Compensation Executer, a leading news source in the insurance industry, suggest up to 25% increases in some of the proposed class codes.

Rancho Mesa has specialized in the education arena for nearly 20 years and is prepared to assist clients with this transition. If you have any questions, please contact Rancho Mesa Insurance Services at (619) 937-0164.