September 29, 2011
California Private Self-Insured Claim Frequency Edged Down in 2010, But Average Claim Costs Rose
Workers' compensation claim frequency among private self-insured employers in California registered a slight decline last year, but only because the incidence of low cost medical-only claims declined according to a new California Workers' Compensation Institute (CWCI) analysis of data compiled by the state Office of Self-Insurance Plans (OSIP). Despite the marginal decline in claim frequency, and the ninth decrease in the number of private self-insured claims in the last 10 years, CWCI found that aggregate loss payments by the state's private self-insured employers continue to climb, spurred by increases in claim severity (average loss per claim).
The OSIP initial summary of private self-insured data, dated August 24, provides the first snapshot of California private, self-insured claims experience for cases reported in 2010, including medical-only and indemnity claim counts, as well as total payments and total incurred losses on those claims through the end of the year. The latest report reflects the experience of private self-insured employers who covered 2.15 million California employees last year (vs. 2.17 covered employees noted in the 2009 initial report), and who reported a total of 79,075 claims in 2010 - compared to 81,473 claims in the 2009 initial report. That works out to a rate of 3.68 claims (2.33 med-only + 1.35 indemnity) per 100 employees, compared to a rate of 3.75 claims per 100 employees in 2009 (2.39 med-only +1.36 indemnity). Total wages and salaries for those employees edged up a fraction, increasing from $79.3 billion in 2009 to $79.7 billion last year.
According to CWCI, the 2010 loss results for California private self-insureds show a continuing pattern that tracks with insured claims experience, as total paid and incurred losses on private self-insured claims have climbed steadily in recent years, driven up by sharp increases in claim severity (average loss per claim), which bottomed out in 2005, shortly after the enactment of the 2002-2005 workers' compensation reforms, and have been trending up ever since. Although increased medical losses have been the biggest cost driver over the past 5 years, indemnity losses for private self-insured employers have been climbing as well. For example, the latest first report data show paid losses for all private self-insured claims from calendar year 2010 (medical-only and indemnity claims) averaged $2,485, up 43.6 percent from the post-reform low noted in 2007, as the average amount paid for indemnity rose 36.6 percent compared to five years earlier, while the average amount paid for medical rose 48.8 percent.
CWCI also examined more developed loss data compiled from private self-insured's 2nd through 5th reports on claims from 1997 to 2009 and found very consistent trends, all of which indicate that private self-insured claim severity hit a post-reform low with calendar year 2005 claims, followed by a steady stream of increases ever since. Thus, despite the ongoing reductions in the number of reported claims and the leveling off of claim frequency, aggregate losses for California private self-insured employers measured at all five valuation points continue to trend up, led by increases in medical losses.
OSIP's 2010 summary of private self-insured data, which reports on calendar year data, follows the release earlier this year of public self-insured claims data, which is reported on a fiscal year basis. Thus, the data from public self-insured employers now lags the private self-insured data by six months, reflecting claims and losses reported through June 2010 rather than through December. The OSIP annual summaries for both private and public self-insured employers from each of the ten most recent years are posted online at http://www.dir.ca.gov/SIP/StatewideTotals.html. The CWCI analysis, "Private Self-Insured Claims Experience in California Workers' Compensation, CY 1997-2010 Claims" can be downloaded from the Research section of the CWCI website at www.cwci.org.