Workers' Comp Rate Increases On the Way with Margaret Hartmann: Part 1

In the first episode of a three-part series, President David Garcia sits down with Margaret Hartmann, Sr. VP and Chief Marketing Officer with BHHC, to explain the outcome of WCIRB’s recent 11.2% recommended rate increase, and offer insight on what areas are driving this increase.

David Garcia: Hi, you're listening to Rancho Mesa's StudioOne™ podcast, where each week we break down complex insurance and safety topics to help your businesses thrive. I'm your host, Dave Garcia. Thanks for joining us.

So today, with the WCIRB's recent announcement of 11.2 % recommended rate increase in workers' compensation, it definitely feels to me like the workers' compensation marketplace in California is about to change. And with that in mind, we've invited Margaret Hartman, the Senior Vice President, Chief Marketing Officer, Berkshire Hathaway Home State Companies, who's one of the largest specialty workers' compensation carriers in California, to give us some insights as to how this recommendation came about, what are the areas that are driving this increase, and what employers can do to try and mitigate the rate increases. Hi, Margaret. Welcome back to Studio One. Thanks for joining me today.

Margaret Hartman: Thanks for having me.

DG: All right. Well, let's just roll up our sleeves and jump into this thing. So starting with the 11.2 rate increase being the recommendation by the Bureau, and the root causes driving it, aside from cumulative trauma claims, which we definitely will talk about today, what are the other areas that are driving this recommended increase?

MH: Okay, well, I think first we have to start with medical cost inflation, which we thought we would see a couple of years ago, and I think really because we've had very good fee schedules here in California, the impact of medical inflation was delayed a little bit. We are now starting to see significant growth in paid medical services per claim in 2024, attributed to a recent growth in the number of medical transactions per claim and a continued increase in paid per transaction.

So one of the other things that happened a couple of years ago is they redid the fee schedule for medical legal services and we've seen increases for medical legal services per claim also with an increase of 15% in 2024. So those numbers are now starting to hit and they're really pretty big numbers.

DG: Yeah, so when you talk about medical cost inflation, that's something I think our audience is probably well aware of just in their own health insurance costs. I mean, what we're talking about here is you go to the doctor for some procedure, it's going to be more expensive today than it was five years ago, simply because of inflation in the medical arena. Is that kind of what we're talking about?

MH: Absolutely.

DG: Yeah. So that eventually is going to trickle into the premium, the losses and all of those things for when we consider workers' compensation, it's going to pull into that arena as well. So that's it. That's a cost driver, an increase that has to be accounted for.

MH: Absolutely.

DG: Yeah.

MH: The fee schedules have now caught up with medical inflation.

DG: Yeah. What else is driving this Margaret?

MH: So we've also seen a slight increase in indemnity payments of about 3%, which is driving indemnity claim and just an indemnity claim is really a lost time claim, a claim that it's not just a need for medical but also disability payments.

DG: Right. So you're going to be away from work.

MH: Right. So the projected severity on indemnity claims for 2024 was 6% higher than in 2023. And the average severity in 2024 is the highest it's been in more than a decade. So we, so we talked a lot about the workers' compensation market and how great the Senate Bill 863 reforms that happened several years ago were on the industry. Well, now we're starting to see that some of those increases creep back in. And so we're seeing indemnity claim frequency also on top of the severity. So it's kind of a double whammy.

DG: Yeah, so more serious claims and more often.

MH: More often.

Yeah, okay.

MH: Now, interestingly, this is what we're going to talk a little bit about, start to talk about CT claims. There was a lot of volatility obviously in frequency during the pandemic years, but then we started to see claims frequency start to tick up and really the sharp increase in the frequency of claims really involves these cumulative trauma or continuous trauma claims that we're going to talk about here in a minute. That started really in 2022 and has continued through the beginning of this year as well. So if you take those claims out of the system, there's a slight actually decline in frequency. So those are really what's driving claims frequency here in California.

DG: Okay. So CT claims is the major driver for this cost increases. So you mentioned it, but before we jump into the topic, just for the audience, how do you define Cumulous Trauma, a CT claim? What is that?

MH: Okay. Yeah, I'm happy to describe what that is.

DG: Give it a shot.

MH: I'm also going to tell you, though, that one last thing on the increases, because these continuous trauma claims are typically litigated, there’s also been a big increase in loss adjustment expenses and we saw a 10 % jump in 2024. So a lot of that 11.2 % increase is driven by these negative trends, including this big impact on continuous trauma. So now I'm going to delve into what is this and you may hear the term cumulative trauma, continuous trauma, RMI, of motion injury, repetitive stress injuries.

The thing that's in comment about these claims is they occur gradually over time. So it's not a specific incident that causes it, but it's a gradual onset. And they result from repetitive stress or continuous exposure or chronic overuse of a body part during work activities. So to give you a couple of examples of repetitive stress injuries is carpal tunnel syndrome, which happens of the risks from repetitive typing. You can have back pain from chronic heavy lifting or bending and stooping.

Hearing loss is another form of continuous trauma from prolonged exposure to loud machinery. You have respiratory claims from prolonged exposure to chemicals.

So those are just some examples of what a continuous trauma claim is.

DG: And that doesn't seem, I mean, obviously some of this could be industry specific. I think about the construction industry, as you know, we focus quite heavily on that. We see a lot of these types of claims from what you were talking about, the lifting, just the year over year over year of doing that manual work. But it's not limited just to construction, right? You're seeing these CT claims across the board, whether it's an office exposure, a manufacturer, hospitality, construction, doesn't really matter, is that?

MH: Absolutely.

DG: Okay. What do you, in your view, what have these CT claims met to the overall performance of workers' compensation claims in California? How big of an impact have they really had?

MH: Well, in talking about the numbers that went into that recommended increase, I mean, CT claims have had a pretty significant impact on our overall system. They're also, interestingly, kind of California -specific. We write workers' compensation, of course, in all states. And we really see this phenomenon here in California. They are typically litigated. 70 % of the continuous trauma claims that we see are litigated, which results in longer claim duration. So they're open longer, they're going to stay on an employer's experience mod longer. So there's a lot of challenges in trying to get these claims resolved. It's typically not a quick resolution. Often there's other carriers involved since they happen a prolonged period of time. They limit it to a year, but there could be two or more different employers that are involved in these claims. So, they can be rather complicated. And then, you know, applicants, attorneys here in California have been very aggressive about using social media and a lot of advertising to kind of get the word out and sometimes even kind of convince workers that the aging process itself is part of their continuous trauma.

And then the other interesting thing that's happened with CT claims recently is they were really, really prevalent in Southern California. So it's kind of started in the LA Basin and expanded throughout Southern Cal. But, you know, there was often talk about there was it was a tale of two states. Southern California had all these issues with CT claims. We didn't see them in the North. Now we're starting to see them. Since 2022, big increases in Northern California and the Central Valley as well.

One of the theories behind why that's happening, which I think makes a lot of sense, is that with the pandemic, a lot of things pivoted, a lot of these legal proceedings now have pivoted to virtual, so they don't have to go to the board to prove the case. The attorneys now can have clients all over the state, it doesn't really matter, and then handle depots and hearings virtually, so it's made it a lot easier for them to get clients that are outside of their area. So we've seen these claims really balloon and expand.

DG: So, that's kind of like you said that's a residual of the COVID years right that's what it had to be enacted and that's just continued.

MH: Right.

DG: Yeah so you know I'm already thinking of some solutions here but let's power forward here a little bit further. So are there any ways potential reform changes in the laws that you can see that might help tune this around?

MH: Well, you know, absolutely, there's opportunities for reform. For one, just tightening the standards around how CT claims are filed and accepted could help. The threshold in California is vague and really leaves the door open for some questionable claims.

Today, really, an introvert only has to prove 1% of work causation cause their disability. So they could have all sorts of pre -existing conditions, but if the work environment contributed even just very slightly like the 1%, that CT claim would be accepted. So you may get some apportionment on permanent disability, but you still, the employer would be responsible for the medical treatment and the temporary disability for that claim. So tightening up some of those thresholds years and years ago in California, we were seeing the same thing. It was just a flurry of mental health psychological claims and with the same threshold and they actually changed the threshold. So now for a pure site claim where there's no other specific incident, post -traumatic stress type situation, that's involved, it's a continuous trauma type of cycling, the work has to be the predominant cause of that. So it's like it's more of a 51% threshold. So maybe doing something like that.

DG: So I mean, that makes total sense to me, of course. What would it take to get something like that done? Why isn't that happening right now?

MH: Yeah, I think the biggest problem is that, you know, it's California right now is having problems with property insurance with a wildfire situation that we have here, auto insurance, there's just not been a focus on workers comp. Workers comp rates have just continued to decline for the past several years, so there hasn't really been any big efforts to make any changes there.

Now that we're seeing rates start increasing, we may see some reform. The California Workers Comp Institute is saying maybe in 2026, I think it's probably going to take a little bit longer than that before, you know, we see any types of changes. I think one of the other things that could be addressed to is really how post termination claims are handled because, you know, we still continue to see these post termination layoff claims where, you know, the insured has a layoff and then we see multiple claims filed often with the same attorney, same types of pleadings.

DG: So, on those post termination claims, is there any timeframe, post termination that they have to file the claim? Is it a year for that as well?

MH: It's not. So, a post term specific injury, there is a statute of limitations of a year, but not for a post-term continuous trauma because if the employee doesn't know that they're injured, they can't report the claim. And since the CT happens over time, the threshold is when you knew or should have known that you had a disability and an injury and so you have to have proof that they went to a doctor and someone told them they were injured and that kind of thing.

DG: So that leaves that door pretty wide open.

MH: Exactly.

DG: And just for the audience, we will get to some solutions that you can do as an employer to maybe try to mitigate some of these things. So what we really are trying to do is let's just get the issues on the table, try to really understand them, and then let's go about trying to put some fixes in place that in your companies that you might be able to do to try to help this situation. We're not going to be able to let it, we're not going to get it to go away until there's more reform. And as Margaret said earlier, that's going to take some time. But I think it's all employer groups, unions, associations, things like that. Now is the time to start to put some focus on, putting some pressure on Sacramento to try to get these things higher on the list and not let it just sit behind the wildfires and the other issues we have in California.

MH: Sure. And I want to add too that we don't want to take legitimate benefits away from somebody who's injured, but we have seen a lot of abuse with these types of claims and that's what we need to get out of the system.

DG: Yeah. I just, I mean, we can talk about the frustration and, you now, the accounts that we manage and work with and, you know, you just see where body parts become separate claims, you know, so it's a CT claim, first it's a shoulder, then a week later it's an ankle, then it becomes a back, an arm, you know, so these are just multiple claims then, which have individual costs, which again really impact the EMR's experience, lots of things like that.

Margaret, listen, I can't thank you enough for joining me today in StudioOne and kind of sharing your insights to this changing worker compensation marketplace.

And thank you all for joining me today in Studio One. If you found this information useful, you can subscribe to our podcast channel, which is StudioOne, all one word, and it can be found on literally all the podcast applications. So thank you again for your time. Goodbye for now.