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Report on the Impact of SB 863 on Loss Development Released

Senate Bill No. 863 (SB 863) was signed by California's Governor on September 18, 2012. The bill increases workers’ compensation benefits effective January 1, 2013 and January 1, 2014 and provides for a number of structural changes to the California workers’ compensation benefit delivery system.

As a result of these changes, SB 863 will not only impact the cost of benefits, but also the rate at which accident year losses are paid (or “develop”) over time.  As part of its SB 863 Cost Monitoring Plan which was submitted to the Insurance Commissioner on March 27, 2013, the WCIRB has continued to study the impact of SB 863 on paid loss development patterns. The latest findings of this ongoing study are included in a report released today on the WCIRB website (www.wcirb.com). These findings will also be reflected in the WCIRB’s upcoming January 1, 2014 Pure Premium Rate Filing.

In the report, the WCIRB noted the following:

  1. In addition to impacting the indemnity development of accident years 2013 and 2014, some provisions of SB 863 will also impact the indemnity paid development of older accident years.
     
  2. During the transition period until actual paid development on post-SB 863 accident years becomes available, the WCIRB recommends that indemnity paid loss development projections be based on the pre-SB 863 payment pattern adjusted for the estimated impacts of the various SB 863 provisions impacting indemnity payments.
     
  3. The WCIRB’s estimated adjustments to the pre-SB 863 cumulative indemnity payment patterns for the impact of SB 863 indicate a modest reduction in accident year 2012 future development, minor changes in accident year 2013 future development, and a significant increase in accident year 2014 future development.
     
  4. Many of the medical provisions of SB 863 apply to future medical treatment on injuries that occurred prior to the effective date of the legislation. If no adjustment is made, the medical loss development factors can be significantly distorted.
     
  5. The WCIRB recommends that historical medical paid loss development patterns used to project future medical development patterns for pure premium ratemaking purposes be adjusted, or “on-leveled”, to a post-SB 863 level.
     
  6. The WCIRB’s estimated adjustments to medical development for SB 863 indicate a modest decrease in future medical development in the post-SB 863 environment.
     
  7. Although the potential exists for an acceleration in medical payments resulting from the provisions of SB 863 related to independent medical review and independent bill review, the WCIRB is not recommending an adjustment to medical paid loss development for this effect at this time. However, the WCIRB recommends that post-SB 863 development patterns be monitored closely and adjusted as appropriate based on actual emerging medical development.

To view the full report, please visit the Research and Analysis section of the WCIRB’s website (www.wcirb.com).

 

August 13, 2013