REVIEW OF MILLIMAN, INC. REPORT
REVIEW OF MILLIMAN, INC. REPORT:
Analysis of Gross Ultimate Loss and Allocated Loss Adjustment Expense from California Based Cumulative Trauma Claims
Contact: Steve Hopcraft 916/457-5546, Steve@hopcraft.com; Twitter: @shopcraft
A recent report that estimated the cost to California employers of cumulative injury claims filed by professional athletes contains a fundamental flaw that completely invalidates its findings. The report examined the cost of "California cumulative injury claims" filed, and expected to be filed, by athletes who played for professional sports teams during the last 30 years. According to this report, the estimated expected cost of these claims in 2011 was $82.1 million. The report concludes that if this figure were included in the most recent workers’ compensation insurance rate filing, the California pure premium would be higher by approximately 1.3%.
The fatal flaw in that conclusion is the fact that California insurance rates are based on claims paid under policies written in California, and only California. Claims paid on insurance policies written in Ohio, Florida, Texas, or any other state have no impact on the rates California employers pay. Yet this report estimates that 78% of the claim costs it looked at come from players associated with teams outside of California. Those teams purchased their workers’ compensation insurance policy in their home state, and all claims paid under those policies were assigned to that state.
If a workers’ compensation policy is written in Ohio for a professional sports team in Cleveland, all claims paid under that policy will be assigned to Ohio. The fact that the claim was adjudicated and paid under California’s workers’ compensation system makes no difference. It is a claim under an Ohio insurance policy, and it is assigned to Ohio. This is no different than any other type of insurance. For example, the cost of an auto accident experienced by an Ohio tourist in Los Angeles is assigned to that driver’s Ohio insurance policy, and California auto insurance rates are not affected. Similarly, the cost of a workers’ compensation claim for a Cleveland Browns football player, even if adjudicated in California, is assigned to the owner’s Ohio insurance policy, and California workers’ compensation rates are not affected.
The California insurance rates referred to in this report are based solely on the experience of California employers who purchased their insurance policies in California. Insurance policies written in Ohio, Texas, Maryland, or any other state, and the claims paid under those policies, have no impact on California rates. Thus, the cost cited in this report that represents out-of-state players does not, and never has, had any impact on California workers’ compensation rates.
A portion of the costs cited in this report does represent cumulative injury costs for players associated with California based teams. Those claims were made under insurance policies written in California. Consequently the costs of those claims were already included in the 2012 pure premium rates for professional sports teams, and contending that rates would rise because of these claims is double-counting the same claim costs.
In California, workers’ compensation insurance rates are assigned by employment classification, with different rates established for nearly 500 types of employment. In each type of employment, the rates are set based on the cost of claims paid within that employment category. The costs of cumulative injuries for athletes on California based professional sports teams, along with all other injury costs associated with athletes on those teams, were already included in the 2012 pure premium rates for those teams. Rates for all other employers were based on the costs from their own employment classification.
California’s employers are not paying higher workers’ compensation insurance rates because some claims paid under insurance policies written in other states were adjudicated under California’s workers’ compensation system.
The recent report that contends California’s pure premium rates in 2012 would be 1.3% higher if the rate calculations included costs assigned to other states is fatally flawed. The cumulative injury claims of out-of-state athletes cited in that report were paid under policies written in other states, not California. California workers’ compensation insurance rates are based solely on the claim costs paid under California insurance policies for California employers.
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