California's rate reduction - not all good news
California workers comp rates are likely to drop again. Clearly, the WC reform initiatives are starting to pay off.
That's good. Sort of.
When rates drop, employers' costs go down, leaving more money for investment, profits, higher wages, and perhaps even health insurance.
That's the good news.
The bad news is an 11% drop in premiums means an 11% cut in administrative fees. While there are undoubtedly opportunities for belt-tightening and cost reduction, this will also mean less money for managed care and fewer dollars for claims handling and loss prevention.
TPAs can expect to be hit hardest by the double whammy of reductions in fee income (for the claims they handle for insurance companies) and a loss in business as their self-insured clients reduce their costs and risk by buying workers comp insurance.
And this will flow downhill - among other things, fewer dollars mean cuts in managed care pricing and higher case loads for adjusters. Next, expect to see claims handling performance slip.
To be followed inevitably by higher claims costs and a bounce at the bottom of the cycle.