In addition, medical-cost inflation continues to rise and claim frequency that had been declining has flattened, they added.

Despite the push for higher comp rates in California, prices continue to fall in most other states, they said.

The reforms California adopted in 2004—which included allowing provider networks for compensation, among several other things—resulted in policy price reductions of more than 50 percent over the past four years, said Richard L. Thomas, senior VP and chief underwriting officer in the property/casualty division at American International Group Inc. in New York.

“But right now, we don’t think there will be any further beneficial impact,” Thomas said. “It has now reached its floor, and what we will see now is the impact of inflation and we will also see whether frequency goes up or down. Frequency will now be a stronger determinant of pricing.”

The recommendation last week by the San Francisco-based Workers Compensation Insurance Rating Bureau of California to raise pure premium rates by 16 percent sets California apart from most other states, at least for now, observers add.

“I haven’t seen any real discussion about rate increases for workers’ compensation in other states,” said Eric A. Silverstein, managing director for national casualty practices at broker Beecher Carlson in Atlanta. “There may be a few things out there but certainly nothing so dramatic.”

Renewing workers’ comp risks nationwide continue to see price drops averaging about 7 percent to 10 percent in a soft market, Silverstein said.

In general, the national workers’ comp market is stable, but medical-cost inflation will likely push claims severity higher, Thomas said. Additionally, a decline in nationwide claims frequency may also be bottoming out, as appears to be happening in California, he said.

California is unique in seeking a 16 percent rate increase, agreed Debbie Michel, chief underwriting officer for Liberty Mutual Group’s business markets section in Boston. Across the nation prices are leveling out, although the market remains competitive, because insurers’ profit margins are thinning after four years of rate declines, she said.

Factors affecting profits include ongoing medical-cost inflation that began to accelerate at the end of last year and into this year, she said.

The size of the ’recommended pure premium rate increase by the Workers Compensation Insurance Rating Bureau surprised some observers.

Some rate increase was expected for January 1, 2009, California renewals because workers’ comp costs have been rising and insurers have been holding firmer on their pricing, said Steve Paulin, senior VP at broker SullivanCurtisMonroe Insurance Services in Irvine, California.

But “it really surprised me in regards to how big of an increase they are looking for,” he said. “Our sense was that the market was justified to have some rate increase just to keep exposure and premium in balance. [But] we were thinking maybe 5 percent or 6 percent.”

As recently as May, Deborah Shulman, director of risk management and insurance for Scan Health Plan in Long Beach, California, received a 10 percent decrease when she renewed workers’ comp coverage, she said.

The Workers Compensation Insurance Rating Bureau said rising medical costs account for 10.8 percent of the rise it is recommending, 2.8 percent is due to increased loss adjustment expenses, and 1.8 percent is due to other costs.

The recommended 16 percent increase would raise average rates to $1.95 per $100 of payroll. In contrast, rates were $4.81 before California launched a series of reforms, the bureau said.

In general, self-insured employers are not seeing medical-cost inflation rise by as much as the bureau suggests, because of various cost-containment measures, said Darrell Brown, national workers’ comp practice leader and VP in the Long Beach, California, office of Sedgwick Claims Management Services Inc.

For insured employers, California’s Department of Insurance can approve or reject the bureau’s ’rate-increase recommendation after holding a hearing scheduled for September 16. Any increase, though, would not be binding on insurers.

The bureau said it could still recommend an additional 3.7 percent rate increase on top of its request for a 16 percent increase for January renewals should California adopt a current Division of Workers’ Compensation proposal to change the state’s permanent disability rating schedule.

The changes would affect the amount of benefits paid to claimants by considering their age and injury type.

Filed by Roberto Ceniceros of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.