California Workers’ Comp Insurance Claims Benefits Up $138 Million

June 22, 2010

Although the number of workers’ compensation insurance claims fell more than 5 percent in 2007, big jumps in the average costs incurred for total disability and minor permanent disability workers’ compensation insurance claims have fueled a $138 million increase in total incurred workers’ compensation benefits, according to the California Workers’ Compensation Institute.

In its latest bulletin, CWCI said after analyzing 18 months of data from 2007 (the most recent data available), there was a big drop in claim volume, but that “failed to keep losses in check,” as total incurred claims costs (paid amounts plus reserves for future payments) rose for the second year in a row, climbing to $3.6 billion up 4 percent from the $3.4 billion level noted in policy year 2006 reports.

Incurred medical costs were the primary cost driver, increasing 4.9 percent to nearly $4.23 billion, CWCI said. However, incurred indemnity costs also increased 2.6 percent to more than $1.37 billion. “Thus, medical costs accounted for 61.9 percent of insurers’ policy year 2007 incurred costs at first report, while indemnity costs accounted for 28.1 percent,” the report stated.

CWCI noted that types of claims have changed. Temporary disability and minor permanent partial disability accounted for a slightly higher share of 2007 claims, and med-onlys represented a slightly smaller share. Claim counts and total incurred for death, permanent total disability and major permanent disability claims with permanent disability ratings of more than 25 percent declined in the policy year 2007. But because these serious injury claims are the least frequent, the decline was not enough to offset higher incurred costs on temporary disability claims, which rose $87.7 million, or 9.1 percent, and minor permanent disability claims, which rose $82.4 million, or 5.8 percent, the report indicated.

“One key to understanding why total claim costs in California workers’ compensation are rising in the face of declining claim volume is to look at claim severity — the average incurred cost per claim,” CWCI said. The average incurred cost on a PY 2007 claim at first report was $8,729, up 9.8 percent from the $7,952 figure noted in 2006. The biggest percentage increases in claim severity were in temporary disability claims, where the average incurred loss recorded was up 11.9 percent to $13,039; and minor PD claims, where the average incurred loss rose more than 20 percent to $45,029.

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Source: CWCI

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