"An accurate and credible rate application by the WCIRB is vital to a functioning workers' compensation system in California. This audit shows that there are many shortcomings that make this task difficult.
"WCIRB has committed to providing a detailed action plan within 30 days to fix these faults. I look forward to receiving them and will carefully monitor their progress in making these changes.
"Especially in a time when the Rating Bureau is requesting unprecedented rate hikes, we must carefully scrutinize all the data involved in making this decision to ensure that any change in the benchmark is warranted. Every additional dollar spent on workers' compensation insurance is a dollar that an employer cannot use to save or create a job. In this economy, when many small businesses are barely staying afloat, an unnecessary rate hike can mean the difference between survival and going out of business. WCIRB must take swift action to correct these issues."
Recommendations made by the audit include:
* WCIRB begin to collect the detailed, transaction-level data needed to perform refined analyses of the potential impact of legislative, regulatory and judicial actions and of why specific components of claim costs are rising or falling.
* WCIRB require all insurers to submit their aggregate financial data call reports electronically and require insurers to resolve all data validation errors prior to submitting the information to the WCIRB.
* WCIRB take remedial action with respect to any insurer group that is required to obtain an independent auditor's report attesting to the insurer group's annual aggregate data report but is unable to obtain a "clean" opinion regarding such data report. Accordingly, we further recommend that the WCIRB's existing remedial action procedures be supplemented by having the WCIRB Governing Committee authorize WCIRB staff, or independent persons engaged by the WCIRB, to perform an on-site audit of insurers that are unable to obtain such a "clean" independent audit report.
* WCIRB implement a program applicable to the largest insurers whereby the senior management and the controllers of the insurers attest to the effectiveness of the insurers' statistical and financial reporting systems. Similar to the recommendation 4 above, we further recommend that the WCIRB authorize WCIRB staff, or independent persons engaged by the WCIRB, to perform an on-sight audit of insurers that do not file the attestation report.
* WCRIB work closely with SCIF to assure that SCIF's data collection and reporting system is functioning effectively.
* WCIRB consider multiple projection methods when making pure premium rate determinations.
* WCIRB provide a range of reasonable pure premium rate level indications to the Actuarial Committee and the Governing Committee.