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wcirb.com
2018
State of the System
The Workers’ Compensation Insurance Rating Bureau of California
Report on California’s Workers’ Compensation System
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State Capitol, CA
wcirb.com
The WCIRB 2018 State of the System Report was developed by the
Workers’ Compensation Insurance Rating Bureau of California
(WCIRB) for the convenience of its users. The WCIRB has made
reasonable efforts to ensure the accuracy of this Report. You must
make an independent assessment regarding the use of this Report
based upon your particular facts and circumstances.
© 2018 Workers’ Compensation Insurance Rating Bureau of
California. All rights reserved.
No part of this work may be reproduced or transmitted in any form or
by any means, electronic or mechanical, including, without limitation,
photocopying and recording, or by any information storage or
retrieval system without the prior written permission of the Workers’
Compensation Insurance Rating Bureau of California (WCIRB),
unless such copying is expressly permitted in this copyright notice or
by federal copyright law. No copyright is claimed in the text of
statutes and regulations quoted within this work.
Workers’ Compensation Insurance Rating Bureau of California,
WCIRB, WCIRB California, WCIRB Connect, WCIRB Inquiry, WCIRB
CompEssentials, X-Mod Direct and the WCIRB California logo
(WCIRB Marks) are registered trademarks or service marks of the
WCIRB. WCIRB Marks may not be displayed or used in any manner
without the WCIRB’s prior written permission. Any permitted copying
of this work must maintain any and all trademarks and/or service
marks on all copies.
To seek permission to use any of the WCIRB Marks or any
copyrighted material, please contact the WCIRB at
customerservice@wcirb.com.
Notice & Copyright
Workers’ Compensation Insurance
Rating Bureau of California
1221 Broadway, Suite 900
Oakland, CA 94612
888.CA.WCIRB (888.229.2472)
Kern County, CA
Introduction
The California workers’ compensation insurance system is more than 100 years
old. The system involves more than 200 insurance companies providing coverage
to nearly 700,000 businesses and delivering medical and wage replacement
benefits to almost 800,000 injured workers annually. The Workers’ Compensation
Insurance Rating Bureau of California (WCIRB), which was established in 1915, is
a licensed rating organization for workers’ compensation and is the California
Insurance Commissioner’s designated statistical agent. As such, the WCIRB
monitors the health of the workers’ compensation insurance system and makes its
data and analyses available to system stakeholders and public policymakers.
This report summarizes the state of the California workers’ compensation
insurance system as of mid-2018. In the report, we highlight the cost of workers’
compensation based on premiums paid by California insured employers and how
those costs are distributed. We also summarize various key system cost drivers,
such as the frequency and average cost of claims. Finally, we also provide a
summary of insurer combined loss and expense ratios and returns on equity over
time. When appropriate, throughout the report, we’ve shown comparisons of
various components of the California system to those of other states. More
detailed information on the sources and basis of each of the charts shown in this
report can be found in the More Info section of this report beginning on Page 62.
The detailed data underlying these charts (in Excel format) is also available
on the WCIRB’s website or by CLICKING HERE.
Joshua Tree National Park, CA
Table of
Contents
Employer Costs \\ 01 Page
Chart 1: Reported Written Premium 7
Chart 2: Drivers of Written Premium Changes 8
Chart 3: California Written Premium Share 9
Chart 4: Average Charged Rate per $100 of Payroll 10
Chart 5: Changes in Average Rates Since 2015 11
Chart 6: Rate Comparison by State Based on Oregon Studies 12
Chart 7: Distribution of Costs by Industrial Sector 13
Cost Distributions \\ 02
Chart 8: Distribution of Insured System Costs 15
Chart 9: Distribution of Paid Indemnity Benefits 16
Chart 10: Distribution of Paid Medical Benefits 17
Chart 11: Distribution of 2017 Paid Medical by Category 18
Chart 12: Distribution of 2017 Paid Frictional Costs 19
Claim Frequency \\ 03
Chart 13: Long-term Reduction in Claim Frequency 21
Chart 14: Indemnity Claims per 1,000 Employees 22
Chart 15: Change in Average Indemnity Claim Frequency 23
Chart 16: Regional Differences in Indemnity Claim Frequency 24
Chart 17: Percent of Indemnity Claims Involving Cumulative Trauma 25
Chart 18: Regional Differences in Proportion of Cumulative
Trauma Claims 26
Chart 19: Indemnity Claims per 1,000 Employees by State 27
Chart 20: Permanent Disability Claims per 100,000 Employees 28
Claim Severity \\ 04
Chart 21: Average Indemnity Cost per Indemnity Claim 30
Chart 22: Change in Indemnity Cost per Indemnity Claim 31
Chart 23: Indemnity Cost per Indemnity Claim by State 32
Chart 24: Average Medical Cost per Indemnity Claim 33
Chart 25: Medical Cost Level Indexed to 2001 34
Chart 26: Change in Average Medical Costs per Indemnity Claim 35
Chart 27: Medical Cost per Indemnity Claim by State 36
Chart 28: Change in Medical Service Cost Levels 37
Claim Severity \\ 04 (…continued) Page
Chart 29: Change in Pharmaceutical Cost Levels 38
Chart 30: Opioid Costs per 100 Claims 39
Claim Duration \\ 05
Chart 31: Percent of Ultimate Medical Cost Paid at 3 Years 41
Chart 32: Percent of Indemnity Claims Unreported at 12 Months 42
Chart 33: Percent of Indemnity Claims Open at 24 Months 43
Chart 34: Percent of Open Indemnity Claims Closed During
Next Year 44
Frictional Costs \\ 06
Chart 35: Average Allocated Loss Adjustment Expenses
per Indemnity Claim 46
Chart 36: Ratios of Unallocated Loss Adjustment
Expenses to Losses 47
Chart 37: Ratios of Allocated Loss Adjustment Expenses to Losses 48
Chart 38: Cost to Deliver $1 of Benefits 49
Chart 39: Percent of Represented Permanent Disability Claims 50
Chart 40: Number of Liens Filed 51
Recent Reforms \\ 07
Chart 41: WCIRB Cost Evaluation of SB 863 53
Chart 42: Share of Total Medical Payments by
Indicted/Suspended Providers 54
Chart 43: Recent Lien Filings by Month 55
Chart 44: Share of Paid Pharmaceuticals Subject to Prospective
Utilization Review 56
Industry Results \\ 08
Chart 45: Projected Combined Loss and Expense Ratios 58
Chart 46: Private Insurer Reported Combined Ratios 59
Chart 47: Average Return on Net Worth 60
Report Summary: 2018 State of the System 61
More Info \\ Appendix
Sources and More… 63
Pit River, CA
Employer
Costs
Insights and Recent Trends
7
Employer Costs
With increasing rates and a
growing economy, premiums
more than doubled from 2009
to 2016
Premiums dropped in 2017 due
to declining insurer rates more
than offsetting payroll growth
With insurer rates continuing to
drop, premium in 2018 is
forecast to further decline
01
Chart 1: Reported Written Premium
5.7
6.4
7.1
12.0
21.4
21.3
13.0
10.6
8.8
9.8
10.8
12.5
14.8
16.4
17.6
18.1
17.7
17.4
0
5
10
15
20
25
95 97 99 01 03 05 07 08 09 10 11 12 13 14 15 16 17 18
Calendar Year
$ Billions
Forecast
More Info
Insights and Recent Trends
8
Employer Costs
While increases in insurer rates
were driving premium growth
through 2015, recent rate
decreases have significantly
reduced premium growth
Increases in the workforce and in
average wage levels were the
primary drivers of premium
growth in 2015 and 2016 and
offset some of the impact of
reduced insurer rates in 2017
Reduced rates are expected to
more than offset payroll growth
in 2018 likely further dampening
premiums
01
Chart 2: Drivers of Written Premium Changes
2.1
0.7
0.5
-1.4
-1.6
0.6
0.7
1.2
1.1
0.9
-0.4
0.2
-0.5
0.8
0.3
-$2.0
-$1.5
-$1.0
-$0.5
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
2012 to 2013
$2.3 Billion
2013 to 2014
$1.6 Billion
2014 to 2015
$1.2 Billion
2015 to 2016
$0.5 Billion
2016 to 2017
-$0.4 Billion
Changes in Average Insurer Charged Rates Increase in Employer Payrolls Other Factors
$ Billions
More Info
Insights and Recent Trends
9
California, with only 11% of
the countrywide workforce,
generates one-fifth of all
workers’ compensation
premiums in the country
With recent rate declines
California’s share of countrywide
premium has been declining
California’s disproportionately
high share of countrywide
premium is largely driven by high
premium rates and higher than
typical wage levels
01
Chart 3: California Written Premium Share
Employer Costs
20% of
Countrywide
Premium
11% of
Countrywide
Workforce
vs.
More Info
Insights and Recent Trends
10
Employer Costs
Due largely to significant
SB 863 savings, average
insurer rates have decreased
22% since 2014
The Insurance Commissioner
has approved seven reductions
in advisory pure premium rates
since 2015, totaling 37% from
the January 1, 2015 level
Current charged rates are at the
lowest level in a decade and are
lower than rates charged in the
1970s and 1980s, as long-term
declining claim frequency and
increasing wage levels have
offset rising medical costs
01
Chart 4: Average Charged Rate per $100 of Payroll
4.21
4.40
2.33
6.02
2.15
2.90
2.97
2.96
2.74
2.46
2.33
$0.00
$2.00
$4.00
$6.00
$8.00
1988 1993 1998 2003 2008 2013 2014 2015 2016 2017 1/18-3/18
Policy Period
More Info
Insights and Recent Trends
11
Average charged rates have
declined following the
Insurance Commissioner’s
approved decreases in
advisory pure premium rates
The Commissioner approved
an additional 10% decrease
in advisory rates effective
July 1, 2018, suggesting that
charged rates may continue
to decline
Average manual rates are
significantly above the rates
charged to employers, indicating
that insurers are, on average,
applying significant pricing
discounts to their filed rates
01
Chart 5: Changes in Average Rates Since 2015
Employer Costs
3.86
3.89
3.79
3.74
3.55
3.43
3.28
3.04
2.86
2.83
2.65
2.53
2.39
2.33
2.75
2.47
2.42
2.30
2.17
2.00
1.94
1.74
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
Jan-2015 Jul-2015 Jan-2016 Jul-2016 Jan-2017 Jul-2017 Jan-2018 Jul-2018
Average Industry Filed Manual Rate Average Charged Rate Average Advisory Pure Premium Rate
More Info
Insights and Recent Trends
12
Employer Costs
In this comparison based on
2016 rates, California is the
highest in the country
Even after adjusting for rate
declines occurring since 2016,
California continues to have
among the highest rates
California’s rates are largely
driven by:
- High frequency of permanent
disability claims (Chart 20)
- A more prolonged pattern of
medical treatments (Chart 31)
- Much higher than average
costs of handling claims and
delivering benefits (Chart 38)
01
Chart 6: Rate Comparison by State Based on Oregon Studies
3.24
2.67
2.33
0
0.5
1
1.5
2
2.5
3
3.5
4
ND IN AR WV VA UT OR MA NV DC KS TX OH AZ MD KY CO MI FL NE SD TN MS ID GA PA AL IA WY MN NC MO NM SC HI NH WA VT ME WI MT LA RI OK IL DE CT AK NY NJ CA
CA 2018 projection based on differences in avg.
industry charged rates from 1Q16 to 1Q18
CA 2018 projection based on changes in approved
advisory pure premium rates from 1/1/16 to 7/1/18
Median = $1.84
More Info
Insights and Recent Trends
13
Employer Costs
With California’s diverse
economy, no industrial
sector grouping generates
more than 16% of statewide
advisory pure premium
While “white collar” type
sectors comprise 60% of
statewide payroll, these
sectors produce only 20%
of statewide pure premium
The Utilities and Construction
sectors comprise only 5% of
statewide payroll but 15% of
statewide pure premium, as
rates for these sectors are
relatively high
01
Chart 7: Distribution of Costs by Industrial Sector
3
1
2
19
2
4
9
5
7
7
42
4
2
5
4
7
9
9
15
14
15
16
0% 10% 20% 30% 40%
Other
Arts & Entertainment
Agriculture & Mining
Information & Prof. Services
Transportation & Warehousing
Hospitality
Education & Health
Utilities & Construction
Manufacturing
Mercantile - Retail & Wholesale
Clerical/Outside Sales/Admin.
Finance/Insurance/Real Estate
Share of Pure Premium
Share of Payroll
More Info
Sacramento, CA
Cost
Distributions
Insights and Recent Trends
15
Cost Distributions
With recent reforms including
SB 863 and SB 1160, medical
benefits’ share of total benefits
has declined by 9 points
since 2013
Although SB 863 increased
permanent disability benefits,
indemnity benefits for 2017 are
relatively consistent with 2013
Total expenses in the system
have increased by $1.5 billion
since 2013 and comprise 42%
of all costs in 2017
02
Chart 8: Distribution of Insured System Costs
10%
7%
2013
$15.6B
$4.2, 26%
$5.3, 32%
$3.3, 21%
$2.1, 13%
$1.3, 8%
2017
$16.2B
More Info
Insights and Recent Trends
16
Cost Distributions
Temporary disability and
permanent partial disability
benefits comprise 90% of
indemnity benefits
The share of indemnity
benefits for permanent
partial disability decreased
modestly from 2013 to 2017
02
Chart 9: Distribution of Paid Indemnity Benefits
$1.6,
48%
$1.4,
43%
$0.1,
4%
$0.1,
2%
$0.1, 4%
Temporary Disability
Permanent Partial Disability
Permanent Total Disability
Death
Other
2013
$3.3B
$1.8,
49%
$1.5,
40%
$0.2,
4%
$0.1,
2%
$0.2,
5%
2017
$3.7B
More Info
Insights and Recent Trends
17
Cost Distributions
Payments for physician
services and pharmaceuticals
have decreased significantly
since 2013
Payments made directly to
injured workers, which are
primarily for future medical
services, have increased due in
part to accelerations in claim
settlement rates (Chart 34)
The cost of medical-legal
evaluations, after increasing
through 2016, declined in 2017
due largely to a reduction in the
number of the more complex
medical-legal reports
02
Chart 10: Distribution of Paid Medical Benefits
$1.4,
29%
$1.2,
25%
$0.7,
14%
$0.5,
10%
$0.3,
6%
$0.2,
5%
$0.3,
5%
$0.3,
6%
Physicians
Payments Made Directly to Injured Workers
Inpatient and Outpatient Services
Pharmaceuticals
Medical-Legal Evaluations
Medical Liens
Medical Supplies and Equipment
Other
2013
$4.9B
$1.2,
27%
$1.3, 29%
$0.6,
15%
$0.2,
4%
$0.3,
7%
$0.2,
4%
$0.3,
6%
$0.3,
8%
2017
$4.4B
More Info
Insights and Recent Trends
18
Cost Distributions
Payments for evaluation and
management and physical
medicine services continue to
grow and represent over 60%
of all physician services
payments in 2017
Payments for outpatient services
grew slightly in 2017
About three-quarters of
pharmaceutical payments were
for non-controlled substances
Opioid payments continue to
shrink and comprise 16% of all
pharmaceutical costs in 2017
02
Chart 11: Distribution of 2017 Paid Medical by Category
Evaluation &
Management,
$0.5, 38%
Surgery,
$0.2, 14%
Physical
Medicine,
$0.3, 23%
Radiology,
$0.1, 8%
Other Physician
Services, $0.2, 17%
Inpatient,
$0.3, 46%
Outpatient,
$0.3, 54%
Physician Services
$1.2B
Inpatient & Outpatient Services
$0.6B
Opioids, $0.03,
16%
Other Controlled
Substances, $0.02, 10%
Non-Controlled
Substances,
Generic, $0.06, 35%
Non-Controlled
Substances, Brand,
$0.07, 39%
Pharmaceuticals
$0.2B
More Info
Insights and Recent Trends
19
Cost Distributions
The majority of frictional costs
paid are for the handling of
claims and the resolving of
disputes on claims
The $3.5 billion of frictional
costs paid in 2017 exceeds
the cost of paid indemnity
benefits (after excluding
applicant’s attorney fees
which are typically reported
in indemnity benefits)
02
Chart 12: Distribution of 2017 Paid Frictional Costs
$0.9, 25%
$0.4, 13%
$0.4, 12%
$0.3, 9%
$0.5, 15%
$0.9, 26%
Defense Attorney Expenses
Medical Cost Containment Program Costs
Applicant Attorney Fees
Medical-legal Costs
Other Allocated Loss Adjustment Expense Costs
Unallocated Loss Adjustment Expenses
2017
$3.5B
More Info
Napa Valley, CA
Claim
Frequency
Insights and Recent Trends
21
Claim Frequency
Claim frequency has declined
by more than 80% over the
last 50 years due to:
- Shifts in economic activity
from a more manufacturing-
based economy to a more
service-based economy
- Increased mechanization
within industries
- Greater attention to
workplace safety
Long-term declines in claim
frequency have generally offset
long-term medical inflation,
moderating the need for
premium rate increases
03
Chart 13: Long-term Reduction in Claim Frequency
1962 1965 1988 2002 2015
-83%
More Info
Insights and Recent Trends
22
Claim Frequency
Indemnity claim frequency
declined steadily from 1991
through 2009
Over the last several years
indemnity claim frequency has
been relatively flat
Although 2017 indemnity claim
frequency is 7% above 2009, it is
70% below 1991 frequency
03
Chart 14: Indemnity Claims per 1,000 Employees
49.6
36.5
30.4
26.7
25.5
24.0
23.0
16.4
15.0
14.1
15.1
15.6
15.6
15.7
15.6
15.1
15.1
14.9
0
10
20
30
40
50
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2012 2013 2014 2015 2016 2017 2018
Accident Year
Percentage (%)
More Info
Insights and Recent Trends
23
Claim Frequency
Until recently, California
frequency changes had
been comparable to those
in NCCI states
Since 2011, countrywide
frequency declined by 27%
compared to being relatively
flat for that period in California
The recent divergence from
countrywide frequency patterns
are driven by:
- Frequency growth in the
Los Angeles Basin (Chart 16)
- Growth in frequency of
cumulative injury claims
(Chart 17)
03
Chart 15: Change in Indemnity Claim Frequency
-3.0
-17.0
-13.9
-6.5
-2.3
-3.9
-2.0
6.8
-0.2
3.4
0.2
0.7
-0.7
-3.4
-0.1
-0.8
-4.1
-3.7
-6.6
-4.5
-2.2
-4.3
-4.9
3.6
-0.9
-5.8
-4.0
-3.0
-5.1
-6.2
-6.0
-20
-15
-10
-5
0
5
10
15
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Accident Year
California NCCI States
Percentage (%)
More Info
Insights and Recent Trends
24
Claim Frequency
There are significant differences
in frequency rates across
California, even after adjusting
for regional differences in
industrial mix and wage levels
Relative frequency is highest in
the Los Angeles/Long Beach
area and lowest in the
Peninsula/Silicon Valley area
03
Chart 16: Regional Differences in Indemnity Claim Frequency
Low Region
Peninsula/Silicon
Valley 0.805
High Region
LA/Long Beach 1.275
More Info
Insights and Recent Trends
25
Claim Frequency
In 2015, 17% of indemnity
claims involve cumulative
trauma compared to 9% in 2006
An early estimate for 2016
shows the rate declining for the
first time since 2006
Cumulative trauma claims:
- Are filed much later than
other claims
- Almost 80% are in LA or
San Diego
- 90% involve representation
of the injured worker
- 40% are filed following the
termination of the employee
- Almost 75% are initially
denied at least in part
03
Chart 17: Percent of Indemnity Claims Involving Cumulative Trauma
11.3
9.3
12.2
13.4
16.8
15.7
0%
5%
10%
15%
20%
25%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Accident Year
Preliminary
Percentage (%)
More Info
Insights and Recent Trends
26
Claim Frequency
Cumulative trauma claims are
filed much more frequently in the
Los Angeles/Long Beach area
than in other regions of California
Cumulative trauma claims are
filed less frequently in the more
rural areas of California
03
Chart 18: Regional Differences in Proportion of Cumulative Trauma Claims
Low Region
Santa Cruz/Monterey/
Salinas: 3.0%
High Region
LA/Long Beach: 9.6%
More Info
Insights and Recent Trends
27
Claim Frequency
California has the 3rd highest
indemnity claim frequency in the
country and is over 65% higher
than the countrywide median
The differences between
California and other states
have grown recently as
California frequency has
remained flat while frequency
in other states has declined
03
Chart 19: Indemnity Claims per 1,000 Employees by State
4.2
14.7
15.5
0.0
5.0
10.0
15.0
20.0
DC VA AR AZ TX UT LA NC AL IN GA KY KS MI NE NM MD SD SC TN MS FL MN DE PA NY MA ME NH CO WV MO IL OK WI IA NV VT NJ MT CT ID AK RI CA HI OR
Median = 8.8
More Info
Insights and Recent Trends
28
Claim Frequency
California has by far the highest
permanent partial disability claim
frequency in the country
California high frequency is not
driven by industrial mix or the
number of severe injuries, which
are comparable to those from
other lower-frequency states
Permanent disability claim
frequency is significantly higher
in the Los Angeles Basin area
and is almost three times the
national median
03
Chart 20: Permanent Disability Claims per 100,000 Employees
718
941
559
0
200
400
600
800
MI DC MA VA ME AL MT LA AZ KY AR NH TX UT PA GA IN MS RI FL MN AK NM DE MD SD NC TN WV NE NV KS VT HI NY SC OK CO CT WI IL NJ IA ID ORMO CA
Median = 315
CA = Los Angeles Basin Area only
CA = All areas of California except the Los Angeles Basin
More Info
San Francisco, CA
Claim
Severity
Insights and Recent Trends
30
Claim Severity
Average indemnity cost per
claim increased by 9% from
2012 to 2015 largely as a
result of increases to
permanent disability benefits
provided by SB 863 (Chart 41)
Indemnity costs since 2015
have been flat as increased
claim settlement rates have
reduced claim duration,
offsetting increases in
average wage levels
Long-term growth in average
indemnity cost has not been
as sharp as growth in average
medical costs (Chart 24) or loss
adjustment expenses (Chart 35)
04
Chart 21: Average Indemnity Cost per Indemnity Claim
27,109
25,840
19,077
22,613
25,932
25,240
25,101
27,152
27,005
27,237
$10,000
$25,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Accident Year
More Info
Insights and Recent Trends
31
Claim Severity
Changes in average indemnity
costs in California have generally
been more similar to countrywide
patterns than other cost
components
Changes in California average
indemnity costs in 2016 and
2017 were well below the
countrywide average changes
Changes in average indemnity
cost per claim for 2014 in
California differed from other
states primarily due to SB 863
increases in California
permanent disability benefits
(Chart 41)
04
Chart 22: Change in Average Indemnity Cost per Indemnity Claim
9.8
-3.2
-1.6
-18.4
-9.5
9.4
8.3
9.2
5.0
-1.3
-1.4
-1.1
0.5
6.4
1.7
-0.5
0.9
10.0
3.3
3.1
1.1
2.8
5.5
6.8
8.1
0.6
-2.8
0.7
-0.6
2.8
1.4
1.0
2.7
4.0
-20
-15
-10
-5
0
5
10
15
20
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Accident Year
California NCCI States
Percentage (%) Change
More Info
Insights and Recent Trends
32
Claim Severity
Average indemnity costs in
California are much more
consistent with other states
compared to other system
components, but still 37%
above the countrywide median
Higher-than-average indemnity
costs in California are largely
driven by the high proportion
of indemnity claims involving
permanent disability (Chart 20)
and high wage levels
04
Chart 23: Indemnity Cost per Indemnity Claim by State
12,066
26,167
50,134
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
UT IN WVOR FL ID AR WI AZ HI MI MT AK TN NH TX KS RI MO KY AL NE MS SD MN ME CO NV IA MDNM CT CA OK VT MA VA NJ IL GA PA SC DC NC DE LA NY
Median = $19,102
More Info
Insights and Recent Trends
33
Claim Severity
Despite several reforms
temporarily curtailing medical
inflation, average medical costs
have increased at a rate of 5%
per year since 1990
From 2011 to 2016, average
medical costs decreased by
18%, primarily driven by SB 863
provisions including those
related to independent medical
review and medical fee
schedules (Chart 41)
Reforms to lien filings (Chart 43)
provided by SB 863, SB 1160
and AB 1244 as well as efforts
to reduce medical provider fraud
have also contributed to recent
overall lower medical severities
04
Chart 24: Average Medical Cost per Indemnity Claim
8,846
13,445
32,177
29,370
41,526
34,143
35,197
0
10,000
20,000
30,000
40,000
50,000
60,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Dollar ($)
Accident Year
More Info
Insights and Recent Trends
34
Claim Severity
The rate of growth in California
workers’ compensation medical
costs, based both on insured and
self-insured loss experience, is
well below that of other states
and group health premiums
The reforms of 2002-2004 as
well as SB 863 (2012) have
significantly reduced medical
inflation over the last 25 years
as compared to other systems
04
Chart 25: Medical Cost Level Indexed to 2001
80
100
120
140
160
180
200
220
240
260
280
300
320
340
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
California Insured Workers' Compensation Medical on Indemnity Claims
California Private Self-Insured Workers' Compensation Average Total Medical Paid per Claim
California Group Health Premiums
NCCI States Workers' Compensation Medical on Indemnity Claims
More Info
Insights and Recent Trends
35
Claim Severity
The 2017 estimated change in
average medical cost per claim
in California is fairly consistent
with that for the NCCI states
Changes in average medical
cost per claim for 2012 through
2016 were significantly lower in
California largely as a result of:
- The medical reforms in
SB 863 (Chart 41)
- Lower pharmaceutical cost
levels (Chart 29)
- Reforms to lien filings from
SB 863 and SB 1160/
AB 1244 (Chart 43)
04
Chart 26: Change in Average Medical Cost per Indemnity Claim
18.6
1.3
-4.6
-7.4
3.3
9.7
11.2
8.7
5.7
0.7
0.2
-5.7
-6.7
-3.7
-2.3
-0.6
3.1
13.6
7.9
8.1
4.7
7.0
5.5
5.8
5.6
4.2
-0.2
2.4
0.8
1.9
3.7
-1.0
6.0
4.0
-10
-5
0
5
10
15
20
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Accident Year
California NCCI States
Percentage (%) Change
More Info
Insights and Recent Trends
36
Claim Severity
Despite recent decreases in
California medical costs, they
are still the 5th highest in the
country and 40% above the
countrywide median
The significantly higher medical
costs in California are largely
driven by the long duration of
medical payments in California
(Chart 31)
04
Chart 27: Medical Cost per Indemnity Claim by State
37,054
53,339
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
RI WV HI OR MA ME DC MI AR NV KY CT MOMD TX ID MS VT IL MT CO SC IA NC OK IN PA WI NH TN KS NE AZ FL MN NJ GA UT NM NY AL SD CA VA LA AK DE
Median = $26,421
More Info
Insights and Recent Trends
37
Claim Severity
Average medical paid per
transaction continues to
increase at a modest rate
The number of medical
service transactions per claim
decreased by 21% since 2012,
which is largely attributable to
SB 863 (Chart 41)
Combined, total medical costs
paid per claim have decreased
by 16% since 2012
04
Chart 28: Change in Medical Service Cost Levels
-5
6
4
1
1
6
-10%
-5%
0%
5%
10%
-2
-7
-10
-2
-2
-21
-30%
-20%
-10%
0%
-7
-2
-7
-2
0
-16
-20%
-10%
0%
2013 2014 2015 2016 2017 Cumulative from
2012
Change in Average Paid
per Transaction
Change in Average
Number of
Transactions per
Claim
Change in Average
Paid per Claim
More Info
Insights and Recent Trends
38
Claim Severity
Average pharmaceutical cost
paid per transaction decreased
by 26% from 2015 to 2017, due
largely to changes in federal
government pricing of drugs
Key factors driving the almost
60% decrease in pharmaceutical
transactions per claim since
2012 include:
- Independent medical review
- Reduced spinal surgeries
- National trends toward
reduced opioid use (Chart 30)
The new Drug Formulary
effective in 2018 is expected to
further reduce pharmaceutical
costs (Chart 44)
04
Chart 29: Change in Pharmaceutical Cost Levels
-2
-11 -26
-35 -24
-68
-70%
-50%
-30%
-10%
2013 2014 2015 2016 2017 Cumulative from
2012
5
5
-5
-19
-9
-23
-30%
-20%
-10%
0%
10%
-6
-16
-23
-20
-17
-59
-60%
-40%
-20%
0%
Change in Average Paid
per Transaction
Change in Average
Number of
Transactions per
Claim
Change in Average
Paid per Claim
More Info
Insights and Recent Trends
39
Claim Severity
The use of opioids in California
has declined by 80% since 2013
Factors driving this decline
include independent medical
review, use of the CURES
system in California, and
reaction to the national
opioid epidemic
04
Chart 30: Opioid Costs per 100 Claims
15,687
13,492
9,087
5,195
3,204
$0
$5,000
$10,000
$15,000
$20,000
2013 2014 2015 2016 2017
More Info
Point Reyes, CA
Claim
Duration
Insights and Recent Trends
41
Claim Duration
The percentage of ultimate
medical paid after three years
increased from 38% in 2012 to
44% in 2017, driven largely by
the SB 863 reforms
California still has a very long
duration of medical payments,
driven by:
- The time it takes to report
claims (Chart 32)
- The length of time claims
stay open (Chart 33)
- A high proportion of
permanent disability
(Chart 20) and cumulative
trauma (Chart 17) claims
- High rates of litigation
(Chart 39)
05
Chart 31: Percent of Ultimate Medical Cost Paid at 3 Years
0%
20%
40%
60%
80%
100%
IN RI CO TX IL ID WI MO KS IA MA FL AK OR NC GA NE ME AR MI HI PA MS OK NH SD VT NJ UT VA AZ SC DC LA CT NM MN TN KY NV AL MD MT NY DE CA CA
Median = 68%
38
44
12/31/12
12/31/17
More Info
Insights and Recent Trends
42
Claim Duration
California has a very slow
pattern of indemnity claim
reporting at 12 months with the
proportion of claims unreported
more than twice the comparison
state median
Over the last five years the
proportion of indemnity claims
reported after 12 months has
increased
A large proportion of the late-
reported claims in California
involve cumulative trauma
injuries, (Chart 17) many of which
are filed following the
employee’s termination
05
Chart 32: Percent of Indemnity Claims Unreported at 12 Months
5%
17
23
25
0%
10%
20%
30%
PA NM TX AZ MA GA OR FL NV NY MN IL CO UT CA CA
Median = 11%
12/31/12
12/31/17
More Info
Insights and Recent Trends
43
Claim Duration
California has the highest
proportion of indemnity claims
open at 24 months which is more
than twice the median state
Claim closure rates have
increased significantly in California
over the last five years but these
rates are still higher than other
states
The slower rate of claim closure in
California is attributable to:
- The high volume of medical
liens filed (Chart 40)
- Higher rates of permanent
disability (Chart 20) and
cumulative trauma claim
frequency (Chart 17)
- A high complexity of handling
and settling claims
05
Chart 33: Percent of Indemnity Claims Open at 24 Months
18
53
46
0%
20%
40%
60%
80%
UT CO FL MA OR NV TX MN AZ GA NM IL CA CA
Median = 23%
12/31/12
12/31/17
More Info
Insights and Recent Trends
44
Claim Duration
Since 2012, indemnity claims
have been closing more quickly
The 29% of open indemnity
claims closing in 2017 is the
highest rate of claim closing
since 1999
The increased rates of claims
closing over the last few years
is in part attributable to SB 863
provisions related to liens
(Chart 41), independent medical
review, independent bill review,
and a reduced number of
spinal surgeries
05
Chart 34: Percent of Open Indemnity Claims Closed During Next Year
35
24
18
26
26
21
20
23
25
27
29
0%
10%
20%
30%
40%
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Calendar Year Ending December 31
More Info
Los Angeles, CA
Frictional
Costs
Insights and Recent Trends
46
Frictional Costs
Instead of declining following
SB 863 as was expected
(Chart 41), average ALAE cost per
claim increased by 17% since
2013 and in 2017 is five times
the 1991 level
Drivers of recent increases in
ALAE costs:
- Increased frequency of
cumulative trauma claims
(Chart 17)
- Acceleration in the rate of
claim settlement (Chart 34)
- Disputes arising from the
transition into recent reforms
as the new reforms are
challenged and interpreted
through the legal system
06
Chart 35: Average Allocated Loss Adjustment Expenses per Indemnity Claim
2,473
2,513
8,561
8,126
10,711
10,916
11,862
12,791
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
More Info
Insights and Recent Trends
47
Frictional Costs
California has among the
highest ratios of ULAE to loss
in the country with a ratio 64%
higher than the median state
California claims are typically
more complex to handle as they
are open longer and more often
involve complex issues such as
permanent disability and
cumulative trauma
06
Chart 36: Ratios of Unallocated Loss Adjustment Expenses to Losses
12
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
NY DE ME VT NE IA NH NV IN AK CT DC NC KS AL OK SC TN FL MS VA AZ RI IL AR WV TX MO MI ID WI MA MT UT HI CO NM CA
Median = 7.3%
More Info
Insights and Recent Trends
48
Frictional Costs
California ratios of ALAE to
losses are almost 10 points
higher than the second highest
state and over twice the
countrywide median
Drivers of high California
expenses:
- High proportion of
permanent disability claims
(Chart 20) and cumulative
trauma claims (Chart 17)
- High rates of representation
and litigation on claims
(Chart 39)
- High volume of liens
(Chart 40)
06
Chart 37: Ratios of Allocated Loss Adjustment Expenses to Losses
4.4
23.4
0%
5%
10%
15%
20%
25%
30%
35%
MT ME ID VT NE IA NH WI CO NM NV IN VA NY AK CT MA DC NC AZ KS RI MO IL AR UT AL HI OK SC TN MI FL TX MS DE WV CA
Median = 10.9%
More Info
Insights and Recent Trends
49
Frictional Costs
California claims administrative
costs are multiples higher than
other medical benefit systems
such as Medicare and the
average for private group health
insurance
California claims administrative
costs are more than double the
cost to provide $1 of benefits
compared to the median state
workers’ compensation system
06
Chart 38: Cost to Deliver $1 of Benefits
Private Group Health
Insurance
California Workers’
Compensation
Medicare
Workers’ Compensation
Median State
$0.02
$0.18
$0.23
$0.53
More Info
Insights and Recent Trends
50
Frictional Costs
Rates of legal representation
in Southern California are
significantly higher than in
Northern California
Rates of legal representation
have been increasing steadily
since 2009 in both Northern
California and Southern
California
Legal representation rates in
California are higher than for
most other states
06
Chart 39: Percent of Represented Permanent Disability Claims
70.8
74.1
77.9
79.3
59.0
61.7
64.9
66.1
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014
Accident Year
Southern CA Northern CA
More Info
Insights and Recent Trends
51
Frictional Costs
Liens typically involve significant
loss adjustment expense costs
that often exceed the amount
settled for the lien
After a significant drop in 2013
and 2014 following SB 863, lien
filings approximately doubled
from 2014 to 2016
SB 1160 and AB 1244, enacted
in 2016, included additional lien
reforms that have reduced lien
filings significantly (Chart 43)
06
Chart 40: Number of Liens Filed
2012
Calendar Year/Quarter
2011 2013 2014
2015 2016
1Q18
2017
464,000
1,200,000
186,000
190,000
364,000
394,000
178,000
45,000
More Info
La Jolla, CA
Recent
Reforms
Insights and Recent Trends
53
Recent Reforms
SB 863 increases to permanent
disability benefits and savings
from the lien reforms emerged
as initially projected
Instead of increasing costs, the
new physician fee schedule based
on Medicare (RBRVS) has
decreased costs
Frictional cost savings resulting
from the new IMR process have
not materialized, as significantly
more IMRs than projected are
being filed and other dispute
mechanisms are still being used
IMR, in addition to independent
bill review and other SB 863
medical reforms, have resulted in
more than $1 billion in additional
annual savings
07
Chart 41: WCIRB Cost Evaluation of SB 863
700
-500
300
-400
-400
-200
800
-500
-300
100
-1,400
-1,300
-$1,500
-$1,000
-$500
$0
$500
$1,000
PD Benefit Changes Liens RBRVS IMR Effect on TD
Duration & LAE
Other Medical
Reforms
Total SB 863 Effect
WCIRB Initial Prospective Estimate
WCIRB November 2016 Estimate
Dollars in Millions ($)
More Info
Insights and Recent Trends
54
Recent Reforms
Over the last several years
many providers have been
indicted for fraud and/or have
been suspended by the Division
of Workers’ Compensation from
practicing in the workers’
compensation system
23% of lien costs and 14% of all
pharmaceutical costs paid in the
second half of 2013 were paid to
providers subsequently indicted
for fraud or suspended from
practicing
Payments to these providers
have decreased over time but
still represent a significant
proportion of lien payments
07
Chart 42: Share of Total Medical Payments by Indicted/Suspended Providers
21
23
23
20
19
18
18
18
17
15
14
12
12
14
13
12
10
10
9
9
7
6
5
5
4
4
3
3
3
2
2
1
1
0%
5%
10%
15%
20%
25%
2012H2 2013H1 2013H2 2014H1 2014H2 2015H1 2015H2 2016H1 2016H2 2017H1 2017H2
Medical Liens
Pharmaceuticals
Physician Services
Payment Transaction Year/Half
More Info
Insights and Recent Trends
55
Recent Reforms
SB 1160 and AB 1244 were
implemented in 2017 and
included several reforms to
lien filings including:
- Restrictions on the ability to
reassign liens to third parties
- Requirement that every lien
must be filed with a
declaration under penalty of
perjury
- Stay on liens filed by
providers indicted for fraud
Since the implementation of
SB 1160 and AB 1244, lien
filings per month are down 40%
Lien filing counts in recent
months have been relatively
stable
07
Chart 43: Recent Lien Filings by Month
24.2
27.0
25.4
25.2
28.7
49.8
8.7
13.1
17.8
17.8
17.8
15.9
15.5
16.4
13.5
15.4
13.3
13.0
15.3
14.1
15.2
0
10
20
30
40
50
7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3
2016 2017 2018
Lien Filing Year & Month
Thousands
Mar 2017 – Mar 2018:
15.5K Liens per Month
~40% Reduction
Jul 2016 – Oct 2016:
25.5K Liens per Month
Transition Period
More Info
Insights and Recent Trends
56
Recent Reforms
The new drug formulary effective
1/1/2018 pursuant to AB 1124
exempts certain pharmaceuticals
from prospective utilization
review (UR)
Drugs are no longer subject to
prospective UR based on the
timing from the date of injury and
a number of other factors
The WCIRB estimates that
approximately 15% of drug costs
and 30% of prescriptions will be
exempt from prospective UR
The WCIRB estimates eventual
savings from the formulary of
0.5% of total costs or approx.
$100 million annually
07
Chart 44: Share of Paid Pharmaceuticals Subject to Prospective Utilization Review
Drug
Formulary
Group
Within 7 Days of Date
of Injury
After 7 Days of Date
of Injury
Total
Subject
to UR (%)
No Longer
Subject
to UR (%)
Subject
to UR (%)
No Longer
Subject
to UR (%)
Subject
to UR (%)
No Longer
Subject
to UR (%)
Exempt
0.0 2.9 8.6 11.5
8.6 14.3
Non-Exempt
0.5 0.5 37.9 0.4
38.4 0.9
Unlisted
1.5 0.0 36.3 0.0
37.7 0.0
Total
2.0 3.4 82.8 11.8
84.8 15.2
More Info
Santa Barbara, CA
Industry
Results
Insights and Recent Trends
58
Industry Results
Combined ratios in California
have historically been very
cyclical and volatile:
- 135% improvement from
1999 to 2005
- 74% deterioration from 2005
to 2009
- 41% improvement from 2009
through 2014
Recent industry ratios have been
unprecedentedly stable, with
2017 being the fourth
consecutive year of a combined
ratio of 90% or less
08
Chart 45: Projected Combined Loss and Expense Ratios
144
128
110
84
54
35
33
43
59
75
88
87
77
68
58
54
52
50
53
25
23
21
18
14
10
9
10
13
16
20
19
23
20
19
17
18
18
19
22
20
18
16
15
14
14
16
18
20
22
23
23
20
18
18
18
18
18
0
50
100
150
200
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Losses
LAE
Other Exps.
90
88
56
191
Accident Year
Percentage (%)
86
130
41 Point Improvement
Over 5 Years
74 Point Deterioration
Over 4 Years
135 Point Improvement
Over 6 Years
89
Stable
Over 3 Years
More Info
Insights and Recent Trends
59
Industry Results
California private insurer
combined loss and expense
ratios have decreased steadily
since 2011
In 2016 and 2017, California
private insurer combined
ratios were below the
countrywide ratios
08
Chart 46: Private Insurer Reported Combined Ratios
108
83
72
67
77
94
110
112
119
114
108
99
95
91
87
110
107
103
93
101 101
110
115 115
109
102
100
94 94
89
30
60
90
120
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
California (Private Insurers) Countrywide (Private Insurers)
Calendar Year
Percentage (%)
More Info
Insights and Recent Trends
60
Industry Results
California workers’ compensation
returns have been more volatile
than the rest of the country
Over the long-term, average
California workers’ compensation
returns have been comparable to
the countrywide average for
workers’ compensation but well
below the Fortune magazine
all-industry average
08
Chart 47: Average Return on Net Worth
-7.3
-11.5
3.1
12.6
14.2
16.4
12.1
7.0
4.6
5.2
7.4
3.9
3.0
5.8
7.9
8.7
-15
-10
-5
0
5
10
15
20
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Fortune Magazine - All Industry
Countrywide Workers' Compensation
California Workers' Compensation
Arithmetic Average Returns 10 Years 15 Years
Fortune Magazine – All Industry 13.2% 13.3%
Total Countrywide Workers’ Compensation 6.6% 7.0%
California Workers’ Compensation 6.6% 6.7%
More Info
Premium Levels Declining
- Rate decreases more than offsetting economic growth
Insurance Market Healthy
- Non-concentrated market
- Rates continuing to decrease but remain among highest in the nation
Cost Drivers
- Frequency beginning to decrease even in Los Angeles Basin
- Severity growth continues to be moderate
- Sharp reduction in pharmaceutical costs
- Claims are closing faster
- Loss adjustment expenses continuing to grow
- Regional differences still significant
Cumulative Trauma Claims Significantly Impact System
Industry Results Continue to be Favorable
Recent Legislation Driving Pure Premium Rate Decreases
61
Industry Results
08
Report Summary: 2018 State of the System
Lake Tahoe, CA
More Info
Oakland, CA
63
Chart 1: Reported Written Premium
Total premium from workers’ compensation policies in California
Does not reflect premium credits for policies that include deductibles
(i.e., data is on a “first-dollar” basis)
Source Data
WCIRB aggregate financial data calls
Chart 2: Drivers of Written Premium Changes
Annual California premium growth attributed to several key contributors
Contributors include: changes in insurer rates, economic expansion as
reflected in increasing employer payrolls, and other contributing factors (e.g.,
change in the average experience modification, more or less premium
captured in audits of older policies, and transitions in and out of self-insurance)
Values sum to the total change in premium (in billions of dollars) for that year
Source Data
WCIRB aggregate financial data calls and published California annual wage
information
Premiums are based on written premiums gross of any deductible credits
Chart 3: California Written Premium Share
California written premium for 2017 as a percentage of total countrywide
premium for the same period
Number of workers in California as a percentage of the total countrywide
workforce
Source Data
WCIRB aggregate financial data calls, NCCI, and Bureau of Labor Statistics
data
Premiums are based on direct written premiums net of deductible credits
Chart 4: Average Charged Rate per $100 of Payroll
Average rates per $100 of payroll charged by insurers in California
Shows the average cost of workers’ compensation insurance paid by
California employers
Differs from advisory pure premium rates, which are approved by the California
Insurance Commissioner, are advisory and only reflect the estimated cost of
losses and loss adjustment expenses
Since 1995, insurers file their own premium rates with the Insurance
Commissioner that may in part be based on the Commissioner’s approved
advisory pure premium rates
Data is categorized by insurance policy periods
Source Data
WCIRB aggregate financial data calls and unit statistical data
Rates for 2018 are based on the first quarter only
More Info
Return to
Chart 1
Return to
Chart 2
Return to
Chart 3
Return to
Chart 4
Oakland, CA
64
Chart 5: Changes in Average Rates Since 2015
Rates shown are per $100 of payroll and are gross of deductible credits
Advisory pure premium rates are based on those approved by the Insurance
Commissioner, are advisory and only include the cost of losses and loss
adjustment expenses
Industry filed manual rates include provisions for insurer general expenses,
acquisition expenses, taxes and fees, and any profit provisions
Average charged rates are based on the premiums actually charged to
employers and include the impact of schedule credits and other premium
adjustment plans
Source Data
WCIRB unit statistical data and aggregate financial data calls and insurer rate
filings with the California Department of Insurance
Chart 6: Rate Comparison by State Based on Oregon Studies
California average charged insurer rates per $100 payroll compared to the
countrywide median average charged insurer rates
Based on the state of Oregon biennial study of workers’ compensation rates
with each state’s average rates adjusted to the Oregon industrial mix
Shows how California workers’ compensation rates compare to those charged
in other states
Data is categorized by rate effective period
Source Data
Oregon Workers’ Compensation Premium Rate Ranking Summary
Data is based on the Oregon classification mix and, as a result, the California
average rates shown differ from other measures of the California average
charged insurer rate
Chart 7: Distribution of Costs by Industrial Sector
Total proportion of premium (based on the Insurance Commissioner’s
approved advisory pure premium rates) and payroll attributed to each industrial
sector
Shows the concentration of insured employer payrolls by industry
Shows the relationship between payroll and advisory pure premium by industry
Source Data
WCIRB unit statistical data for policy year 2015
Industries are based on WCIRB classifications mapped to the North American
Industry Classification System (NAICS)
Chart 8: Distribution of Insured System Costs
Distribution of total California workers’ compensation insured system costs
incurred in 2013 and 2017 by cost component
Shows the major cost categories funded by the workers’ compensation
insurance premiums paid by California employers
Data shown in billions of dollars as well as the percentage of the total system
costs for that year
Source Data
WCIRB aggregate financial data calls
Changes in total insurer reserves by calendar year have been apportioned to
indemnity and medical benefits based on the distribution of indemnity and
medical payments during the calendar year
More Info
Return to
Chart 5
Return to
Chart 6
Return to
Chart 7
Return to
Chart 8
Oakland, CA
65
Chart 9: Distribution of Paid Indemnity Benefits
Distribution of indemnity benefits paid in 2013 and 2017 by type of benefit
Indemnity benefits are provided to injured workers or, in the case of fatal
injuries, to their dependents to partially compensate for lost wages, with
additional benefits provided if a worker suffers a permanent disability
Indemnity benefits by type generally depend on the extent of the injury to the
injured worker, the injured worker’s pre-injury weekly wage, and statutorily
defined benefit levels
Source Data
WCIRB aggregate financial data calls
Chart 10: Distribution of Paid Medical Benefits
Distribution of medical benefits paid in 2013 and 2017 by type of medical
service
Includes information on a variety of medical treatments that are provided to
injured workers, including physician visits, prescription medications, medical-
legal evaluations, and surgeries
Source Data
WCIRB aggregate financial data calls and medical transaction data
Figures exclude medical cost containment program payments (which are
included as a portion of loss adjustment expenses)
Chart 11: Distribution of 2017 Paid Medical By Category
Distribution of physician services, inpatient and outpatient services, and
pharmaceutical payments made in 2017 by detailed type of service
Source Data
WCIRB medical transaction data
Chart 12: Distribution of 2017 Paid Frictional Costs
Distribution of the major categories of frictional costs including allocated loss
adjustment expenses, or ALAE, unallocated loss adjustment expenses, or
ULAE, applicant attorney fees, medical cost containment program costs, and
medical-legal costs paid in 2017
ALAE are the costs associated with defending workers’ compensation claims
when there are disputes and managing the cost of medical treatment (i.e.,
medical cost containment)
ULAE are the costs associated with insurer claims staff in administering
workers’ compensation claims
Source Data
WCIRB aggregate financial data calls
More Info
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Chart 9
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Chart 10
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Chart 11
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Chart 12
Oakland, CA
66
Chart 13: Long-term Reduction in Claim Frequency
Shows the long-term trend in the frequency of workers’ compensation injuries
Changes in claim frequency can be driven by changes in the mix of industries
in California, the mechanization within industries, workplace safety practices,
indemnity benefit levels, and the overall state of the California economy
Source Data
WCIRB unit statistical data
Based on reported claim counts compared to reported payroll adjusted for
wage inflation indexed to 1962
Chart 14: Indemnity Claims per 1,000 Employees
Estimated number of workers’ compensation indemnity claims filed in
California per 1,000 insured employees
Shows trends in the frequency of workers’ compensation injuries
Changes in claim frequency can be driven by changes in the mix of industries
in California, the mechanization within industries, workplace safety practices,
indemnity benefit levels, and the overall state of the California economy
Data is categorized by the year the injury occurred (accident year)
Source Data
WCIRB unit statistical data. 2018 is preliminary based on 3 months.
Chart 15: Change in Indemnity Claim Frequency
California claim frequency changes compared to a composite of frequency
estimates based on states reporting data to the National Council on
Compensation Insurance (NCCI)—an organization that provides a similar
function to the WCIRB for many other states
California claim frequency changes for 2004 and 2005 are highly impacted by
the reforms enacted during this period
Source Data
WCIRB unit statistical data. 2017 and 2018 are based on changes in indemnity
claim counts from WCIRB aggregate financial data compared to changes in
statewide employment. 2018 is based on 3 months. NCCI estimates from the
2018 State of the Line Guide.
Chart 16: Regional Differences in Indemnity Claim Frequency
Heat map of California regions showing indemnity claim frequency levels
relative to the statewide average frequency
Shows which regions in California have higher or lower claim frequency rates
when compared to the state as a whole
The mix of industries and average wage levels can significantly impact claim
frequency rates, so the data is adjusted to remove these differences across
regions to show the figures on a comparable basis
Source Data
WCIRB unit statistical data for policy year 2015 at 1st report level
Region information obtained by linking WCIRB policy and unit statistical data
with Hoover’s/Dun and Bradstreet location information as well as WCIRB
medical transaction data
For more information on the study of regional cost differences within California,
see the 2017 WCIRB Geo Study
More Info
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Chart 13
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Chart 14
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Chart 15
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Chart 16
Oakland, CA
67
Chart 17: Percent of Indemnity Claims Involving Cumulative Trauma
Proportion of total indemnity claims that involve a cumulative trauma injury
Most workers’ compensation claims (i.e., non-cumulative injuries) result from a
single accident or specific incident causing injury
Cumulative injuries result from a prolonged period of exposure (many years in
some cases) causing cumulative trauma over time
Source Data
WCIRB unit statistical data developed to an estimated ultimate level
Cumulative trauma also includes occupational disease claims
Chart 18: Regional Differences in Proportion of Cumulative
Trauma Claims
Heat map of California regions showing their proportion of cumulative trauma
claims as a share of total claims
The data is adjusted to remove differences in the mix of industries and average
wage levels by region to show the figures on a comparable basis
Source Data
WCIRB unit statistical data for policy year 2015 at 1st report level
Region information obtained by linking WCIRB unit statistical data with
Hoover’s/Dun and Bradstreet location information as well as WCIRB medical
transaction data
For more information on the study of regional cost differences within California,
see the 2017 WCIRB Geo Study
Chart 19: Indemnity Claims per 1,000 Employees by State
Comparison of California indemnity claim frequency per 1,000 insured
employees to that of other states
Source Data
2017 NCCI Annual Statistical Bulletin for policy year 2013 at 1st report level
Chart 20: Permanent Disability Claims per 100,000 Employees
Comparison of California permanent partial disability claim frequency per
100,000 insured employees to that of other states
Approximately one-half of all indemnity claims in California involve some form
of permanent disability
Claims involving permanent disability generate the vast majority of costs in the
workers’ compensation system
Permanent partial disability in California is determined based on the American
Medical Association (AMA) Guides 5th Edition
Other states that utilize the AMA Guides 5th Edition do not have a significantly
higher rate of permanent disability claims
Source Data
2017 NCCI Annual Statistical Bulletin for policy year 2013 at 1st report level
and WCIRB unit statistical data
More Info
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Chart 17
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Chart 18
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Chart 19
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Chart 20
Oakland, CA
68
Chart 21: Average Indemnity Cost per Indemnity Claim
Average cost of indemnity benefits per indemnity claim
Changes in indemnity cost per claim can be driven by changes in statutory
benefit levels, changes in average weekly wage levels on which a large
proportion of indemnity benefits are predicated, changes in the duration of
claims, and changes in the mix of the types of indemnity benefits (such as
permanent disability benefits)
Source Data
WCIRB aggregate financial data calls as of March 31, 2018
Values are developed to a final or ultimate cost basis by the WCIRB
Chart 22: Change in Average Indemnity Cost per Indemnity Claim
Changes in average indemnity costs for California by accident year compared
to those for the composite of NCCI states
Source Data
California estimates are based on WCIRB aggregate financial data calls
NCCI estimates are based on the 2018 State of the Line Guide (2017 estimate
is preliminary)
Chart 23: Indemnity Cost per Indemnity Claim by State
Comparison of California average indemnity cost per indemnity claim to that of
other states
Source Data
2017 NCCI Annual Statistical Bulletin based on policy year 2013 at 1st report
level developed to a final or ultimate cost basis
Chart 24: Average Medical Cost per Indemnity Claim
Average cost of medical benefits per indemnity claim by accident year
Changes in medical costs per claim can be driven by changes in
reimbursement rates from California medical fee schedules, legislative reforms
impacting the medical benefit delivery system, changes in the utilization of
medical services, and overall medical cost inflation
Source Data
WCIRB aggregate financial data calls as of March 31, 2018
Data excludes the cost of medical-only claims and, for consistency of
comparison, includes the cost of medical cost containment programs
Values are developed to a final or ultimate cost basis by the WCIRB
More Info
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Chart 21
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Chart 22
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Chart 23
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Chart 24
Oakland, CA
69
Chart 25: Medical Cost Level Indexed to 2001
The average medical cost indexed to 2001 for several workers’ compensation
systems and for California group health premium levels
Compares medical inflation levels over the last 15+ years in different systems
Data is categorized by year of injury for the California insured and NCCI state
data and by calendar year for California Private Self-Insured and California
Group Health Premium data
Source Data
WCIRB aggregate financial data calls excluding the cost of medical-only
claims and including the cost of medical cost containment programs and
developed to a final or ultimate cost basis by the WCIRB
NCCI state estimates are based on the 2018 State of the Line Guide (2017
estimate is preliminary)
Self-insured cost estimates are from annual summaries published by the
California Department of Industrial Relations
Summary group health cost information is from the California Employer Health
Benefits Survey published by the California Healthcare Foundation
Chart 26: Change in Average Medical Cost per Indemnity Claim
Changes in average medical cost per indemnity claim for California by
accident year compared to those for the composite of NCCI states
Source Data
California estimates are based on WCIRB aggregate financial data calls and
include the cost of medical cost containment programs
Estimates for NCCI States are based on the 2018 State of the Line Guide
(2017 estimate is preliminary)
Chart 27: Medical Cost per Indemnity Claim by State
Comparison of California average medical cost per indemnity claim to that of
other states
Source Data
2017 NCCI Annual Statistical Bulletin based on policy year 2013 at 1st report
level developed to a final or ultimate cost basis
Chart 28: Change in Medical Service Cost Levels
Annual changes in the average paid per medical service transaction, the
average number of medical service transactions per claim, and the average
total paid for medical services per claim
Data is categorized by the year in which the medical service was provided
Source Data
WCIRB medical transaction data
Chart 29: Change in Pharmaceutical Cost Levels
Annual changes in the average paid per pharmaceutical transaction, the
average number of pharmaceutical transactions per claim, and the average
total paid for pharmaceuticals per claim
Data is categorized by the year in which the medical service was performed
Source Data
WCIRB medical transaction data
More Info
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Chart 25
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Chart 26
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Chart 27
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Chart 28
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Chart 29
Oakland, CA
70
Chart 30: Opioid Costs per 100 Claims
Total dollars paid for opioid prescriptions per 100 claims with medical services
in a particular service year
Opioids are among the most powerful drugs prescribed for pain relief
According to the Food and Drug Administration, although opioids can help
manage pain when used properly, when abused they can cause serious harm
including addiction, overdose and death
Source Data
WCIRB medical transaction data
Chart 31: Percent of Ultimate Medical Cost Paid at 3 Years
Comparison of the estimated percentage of ultimate medical costs paid after
three years to that of other states
High numbers represent states which pay medical costs faster while low
numbers represent states which pay medical costs slower
Two California estimates are shown, one projected as of December 31, 2012
and one projected as of December 31, 2017
Source Data
2017 NCCI Annual Statistical Bulletin based on the average of the two most
recent development years and WCIRB aggregate financial data calls
Chart 32: Percent of Indemnity Claims Unreported at 12 Months
Comparison of the California percentage of the estimated total number of
indemnity claims that have not yet been reported by the end of the first 12
months of the year of injury to that of other states
Workers’ compensation indemnity claims can sometimes be reported much
later after the time of the injury, for a variety of reasons
Two California estimates are shown, one based on data as of December 31,
2012 and one based on data as of December 31, 2017
Source Data
California figures are from WCIRB aggregate financial data
Individual state summaries were provided by NCCI, the Minnesota Workers’
Compensation Insurers Association, the Workers’ Compensation Rating &
Inspection Bureau of Massachusetts, and the Pennsylvania Compensation
Rating Bureau
Chart 33: Percent of Indemnity Claims Open at 24 Months
Comparison of the California percentage of the reported number of indemnity
claims that are still open at 24 months (or 2 years) from the beginning of the
year of injury to that of other states
Workers’ compensation claims remain open while statutory indemnity benefits
are paid and medical treatment is provided to injured workers
Other factors that may keep claims open include the existence of unsettled
medical liens or unresolved disputes regarding medical treatment or the extent
of permanent disability
Two California estimates are shown, one based on data as of December 31,
2012 and one based on data as of December 31, 2017
Source Data
California figures are from WCIRB aggregate financial data calls
Individual state summaries were provided by NCCI, the Minnesota Workers’
Compensation Insurers Association, the Workers’ Compensation Rating &
Inspection Bureau of Massachusetts, and the Pennsylvania Compensation
Rating Bureau
More Info
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Chart 30
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Chart 31
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Chart 32
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Chart 33
Oakland, CA
71
Chart 34: Percent of Open Indemnity Claims Closed During
Next Year
Ratio of the number of indemnity claims closed during a calendar year to the
number of claims open at the beginning of the year
Higher closing rates indicate claims have been moving quicker through the
system, reducing the need for future costs
Source Data
WCIRB aggregate financial data calls
Chart 35: Average Allocated Loss Adjustment Expenses per
Indemnity Claim
Average cost of loss adjustment expenses that can be allocated to a particular
claim (“allocated loss adjustment expenses” or “ALAE”)
ALAE costs include the cost of attorney and other legal expenses in defending
claims, the cost of medical cost containment programs, the cost of
independent medical and independent medical bill reviews, and other court-
related expenses
Legal expenses arise on claims during disputes over medical treatment or the
extent of permanent disability, in the course of handling liens filed on claims,
and during the process of settling claims
Average ALAE costs differ regionally in California and are over 20% higher in
the Los Angeles Basin area than in the rest of the state
Source Data
WCIRB aggregate financial data as of March 31, 2018 for private insurers
writing workers’ compensation business in California
Values are developed to a final or ultimate cost basis by the WCIRB
Figures exclude the cost of medical cost containment programs for
consistency of comparison
For more information on recent ALAE cost trends, see the WCIRB’s Emerging
Trends in California Workers’ Compensation ALAE Costs
Chart 36: Ratios of Unallocated Loss Adjustment
Expenses to Losses
Comparison of the ratio of unallocated loss adjustment expenses to losses for
California to that of other states
Unallocated loss adjustment expenses (or ULAE) include the cost of insurer
claim staff to administer the claims and other claims related expenses that
cannot be allocated to a particular claim
ULAE is significantly correlated with the length of time claims remain open
Source Data
2017 NCCI Annual Statistical Bulletin and the WCIRB’s July 1, 2018 Pure
Premium Rate Filing
Chart 37: Ratios of Allocated Loss Adjustment Expenses to Losses
Comparison of the ratio of allocated loss adjustment expenses to losses for
California to that of other states
Allocated loss adjustment expenses (or ALAE) include the cost of attorney and
other legal expenses in defending claims, the cost of medical cost containment
programs, and other court related expenses
Source Data
2017 NCCI Annual Statistical Bulletin and the WCIRB’s July 1, 2018 Pure
Premium Rate Filing
More Info
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Chart 34
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Chart 35
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Chart 36
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Chart 37
Oakland, CA
72
Chart 38: Cost to Deliver $1 of Benefits
Compares the California cost to deliver $1 of benefits measured as loss
adjustment expense costs and other related claims administrative costs to
claims administrative costs in other systems that provide medical benefits
California claims administrative costs include allocated loss adjustment
expenses, unallocated loss adjustment expenses, medical-legal costs,
applicant attorney fees, and the cost of medical cost containment programs
Source Data
Workers’ compensation figures are from WCIRB aggregate financial data calls
and the 2017 NCCI Annual Statistical Bulletin
Medicare figures are from the Centers for Medicare and Medicaid Services
2016 Medicare Trustees Report
Private group health insurance figures are estimated from a number of
published studies on group health administrative costs
Chart 39: Percent of Represented Permanent Disability Claims
Percentage of claims involving permanent disability that involve representation
by an applicant’s attorney for the injured worker by accident year
A represented claim will typically involve more legal expenses than a non-
represented claim
Source Data
WCIRB Permanent Disability Claim Survey
Regional information is based on the Workers’ Compensation Appeals Board
office to which the claim is assigned
Chart 40: Number of Liens Filed
Number of liens filed by year of lien filing
The majority of liens are filed by medical providers for costs of treatment over
the amount reimbursed or for medical treatment
Source Data
California Division of Workers’ Compensation Electronic Adjudication
Management System
Chart 41: WCIRB Cost Evaluation of SB 863
WCIRB estimates of the cost impact of the major provisions of SB 863 in
millions of dollars
Compares the WCIRB’s initial prospective estimates made in October of 2012
to its November 2016 retrospective estimates
Source Data
Senate Bill No. 863 WCIRB Cost Monitoring Report – 2016
Retrospective Evaluation
The WCIRB continues to monitor the impact of SB 863 and other recent
reforms through its Actuarial Committee
Dollar estimates are based on the total workers’ compensation system
including the self-insured market
More Info
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Chart 38
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Chart 39
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Chart 40
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Chart 41
Oakland, CA
73
Chart 42: Share of Total Medical Payments by Indicted/
Suspended Providers
Shows the proportion of total payments made for medical liens,
pharmaceuticals, and physician services that have been paid to medical
providers that were later indicted for fraud and/or have been suspended by the
Division of Workers’ Compensation
Source Data
WCIRB medical transaction data
Data includes payments made to approximately 230 providers or associated
facilities that have been indicted for fraud or suspended based on information
published by the Division of Workers’ Compensation as of March 2018.
Chart 43: Recent Lien Filings by Month
Shows the total number of liens filed in the system by calendar year and month
based on the date the lien was filed
SB 863 included a statute of limitations on lien filings which resulted in
temporary increases to lien filings during January 2015 through June 2016 for
which two statutes applied (Chart 40)
Lien filings were atypically high in November and December of 2016 as a
result of the transition to SB 1160 and AB 1244; many of these liens would
otherwise have been filed in January or February of 2017
The requirement of a declaration to be filed with every lien also applied to
outstanding liens as of July 2017 and the Division of Workers’ Compensation
dismissed approximately 292,000 liens without declarations filed
Source Data
California Division of Workers’ Compensation Electronic Adjudication
Management System
Chart 44: Share of Paid Pharmaceuticals Subject to Prospective
Utilization Review
Shows the proportion of payments for drugs under the new drug formulary that
are listed as exempt, non-exempt, or not listed in the formulary
Exempt drugs are generally no longer subject to prospective utilization review
except in some cases where they are dispensed out of a physician’s office
after seven days from the date of injury
Non-exempt drugs are generally still subject to prospective utilization review
except in some cases where they are prescribed within seven days of the date
of injury or for post-surgery care
The drug formulary groups shown are based on the Medical Treatment
Utilization Schedule drug list published on December 7, 2017 to be effective on
January 1, 2018
Source Data
WCIRB medical transaction data for drug prescriptions filled between
July 1, 2016 and June 30, 2017
More Info
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Chart 43
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Chart 44
Oakland, CA
74
Chart 45: Projected Combined Loss and Expense Ratios
Ratios of WCIRB projected losses and expenses to insurer premium by
accident year
Combined ratios are a commonly used measure to evaluate the profitability of
insurers from an underwriting perspective
Due to investment income earned on collected premiums as claims are paid
out over many years, insurers can generate a profit with a combined ratio
above 100%, assuming a favorable investment climate
Industry combined ratios significantly over 110% could, over a sustained
period, threaten the competitive viability of the insurance market
Source Data
WCIRB projections based on aggregate financial data calls
Loss and loss adjustment expense amounts shown are based WCIRB
projections using the actuarial methodologies reflected in the WCIRB’s July 1,
2018 Pure Premium Rate Filing
Chart 46: Private Insurer Reported Combined Ratios
Comparison of the ratio of losses and expenses to insurer premium for private
insurers writing workers’ compensation business in California to the
countrywide average for private insurers by calendar year
Combined ratios are a commonly used measure to evaluate the profitability of
insurers from an underwriting perspective
Due to investment income earned on collected premiums as claims are paid
out over many years, insurers can generate a profit with a combined ratio
above 100%, assuming a favorable investment climate
Industry combined ratios significantly over 110% could, over a sustained
period, threaten the competitive viability of the insurance market
These ratios differ from those shown on Chart 45 in that they are based on
reported losses during the calendar year on all open claims regardless of when
the claim occurred
Source Data
California ratios are based on WCIRB aggregate financial data calls
Countrywide estimate is based on the NCCI 2018 State of the Line Guide
computed based on Annual Statement data (the 2017 estimate is preliminary)
Excludes the impact of the State Compensation Insurance Fund and other
state funds
Chart 47: Average Return on Net Worth
Summary of total return on net worth for California workers’ compensation
compared to countrywide workers’ compensation and the Fortune magazine all
industry average
Reflects the impact of investment income, federal income taxes, and insurer
profits, as reported by the National Association of Insurance Commissioners
(NAIC), that are not included in insurer combined ratios
Source Data
NAIC Report on Profitability in 2016
The NAIC estimates the total return to the industry after reflecting premiums,
losses, and expenses, as well as allocations of an insurer’s total investment
income, federal income taxes, and policyholder surplus to California workers’
compensation
More Info
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Chart 45
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Chart 46
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Chart 47
1221 Broadway, Suite 900
Oakland, CA 94612
888.CA.WCIRB (888.229.2472)
© 2018 Workers’ Compensation Insurance Rating Bureau of California. All rights reserved.
wcirb.com
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