The Workers’ Compensation Insurance Rating Bureau (WCRIB) published a report about California’s Allocated loss adjustment expense (ALAE) costs, and though the reforms enacted in 2013 have reduced other cost components, it appears ALAE costs are still increasing in the state.

The report is titled “Emerging Trends in California Workers’ Compensation ALAE Costs” and can be read in full here.

ALAE costs are the costs of handling claims that can be attributed to individual claims. California has always had high ALAE costs even after SB 863 was enacted in 2013 with the hopes of reducing such costs. In the last 25 years ALAE costs have increased from an estimated $2,456 per indemnity claim to an estimated $13,598 per indemnity claim, more than a five-fold increase. In 2013 when the reforms were enacted, ALAE costs were estimated at $11,747 per indemnity claim for private insurers. California’s ALAE costs as a percentage of losses are more than ten points higher than the second highest state.

Researchers attribute the increases in ALAE to an increased frequency of indemnity claims involving cumulative injuries. Other WCRIB surveys have shown that cumulative injury claims are more often taken to litigation. Claims are being settled at a greater rate, and ALAE costs can be significant when settling claims, especially those settled by compromise and release, which may also be contributing to the increased ALAE costs. In 2010 14 percent of closed claims settled by compromise and release incurred significant ALAE costs and in 2014, 34 percent of closed claims settled this way incurred significant ALAE costs.

A majority of California’s permanent disability claims involved a worker’s attorney or a Workers’ Compensation Appeals Board (WCAB) appearance. Attorneys are also involved in claims much earlier on in the process, in 40 percent of represented permanent disability claims, the first notice of the claim was provided by the injured worker’s attorney. The reforms in 2013 were intended to reduce the number of liens filed and they did drop in 2013 and 2014. However liens increased in 2015 and the first half of 2016 and continued to be a large driver of total loss adjustment expense costs, including ALAE costs.

Costs have increased throughout the state, but claims from the Los Angeles Basin area are 20 percent more likely to include significant ALAE costs.