By CYRIL TUOHY,
managing editor of Risk & Insurance®
Workers' compensation rates will continue their downward trend in 2009 in many states, according to rate filings, but the news is a double-edge sword. What's good for just about every company in the country isn't necessarily good for insurance companies in the property/casualty business.
For employers struggling to be profitable after more than a year in recession, the news couldn't come at a better time. Paying less in workers' comp premiums will help them weather a brutal economy.
But for insurance carriers, most coming off a tough 2008 marked by a dismal investment environment and expensive claims from hurricanes Gustav and Ike, lower rates mean carriers will have to rely on other lines to contribute to profits over the next few quarters.
STATES WITH DECREASING RATES
In North Carolina, a request of a 4.4 percent decrease in the voluntary market and a 3.8 percent decrease in the high-risk pool was approved by Insurance Commissioner Jim Long last October. The cuts go into effect on April 1, saving businesses an estimated $65.5 million. It is the first decline in rates since 2004.
In South Carolina, the National Coalition of Compensation Insurers Inc. requested a 0.3 percent cut in rates beginning July 1, 2009. The request for the cut, due to a hospital fee schedule implemented in 2006 and a decline in lost-time claims frequency, follows a 9.8 percent hike that went into effect July 1, 2007.
In Delaware, rates are expected to drop by 6 percent. The cuts are part of a multiyear legislative reform initiative enacted in 2007, which changed the medical fee schedules for the treatment of workers' comp injuries.
"This rate cut will save millions of dollars for Delaware employers at a time when they could certainly use it," said Delaware Insurance Commissioner Matthew Denn.
Rates will continue to drop through 2011as part of the reforms.
Employers in Oregon, who've been on the receiving end of a statewide campaign to make workplaces safer, can expect a 5.9 percent decrease, on average, in the base rate of their workers' comp premiums in 2009, according to the Oregon Department of Consumer and Business Services.
Safer work condition are also being credited by Colorado workers' comp officials as the reason for a 16 percent drop in so-called loss costs, or lost wages and medical payments of workers injured during the course of employment.
"The drop in loss costs will push many workers' compensation premiums down," said Colorado Insurance Commissioner Marcy Morrison.
And in New Mexico, the insurance superintendent approved a 6.7 percent cut for carriers in the voluntary insurance carrier market, and a 1.3 percent decrease in the assigned-risk market. The lower rates reflect reduced severity of indemnity claims.
Employers in Missouri, helped by cuts to workers' comp taxes, should also see their premiums fall, according to Gov. Matthew Blunt. A September filing by the National Council on Compensation Insurance Inc., which represents the nation's largest workers' comp carriers, requested a 7.7 percent average decrease in insurance rates beginning in January.
Missouri workers' comp officials attributed reforms enacted in 2005 for the anticipated cuts in 2009 rates.
In Kentucky, an average reduction of 5.1 percent for the 596 industrial classes used in that state has been in effect since Oct. 1, 2008. These classes include manufacturing, office and clerical, contracting, and goods and services. For coal classes, underground mining costs dropped 10.5 percent while surface mining decreased 8.7 percent. Insurance Commission Sharon P. Clark attributed the declined to safer workplaces and "a slight decline" in the severity of claims.
In New York, following a 20.5 percent cut in 2008, rates will again decline but by about 5 percent, according to Gov. David A. Paterson, after a series of well-publicized reforms enacted by former governor Eliot Spitzer in 2007.
And to the south in New Jersey, Department of Banking Insurance Commissioner Steven M. Goldman announced that comp insurance premiums will drop by about 1 percent in 2009, saving the state's employers an estimated $33 million. He, also, attributed the slight drop to a "more conscientious workplace safety culture." It is the first decrease in that state in seven years.
In Maine, the NCCI filing approved by the state insurance superintendent will reduce rates overall by 7.6 percent with the dollar value to employers, based on the premiums paid in 2007, totaling about $18.3 million.
Laura Backus-Hall, the regional representative for NCCI, said the reason for the lower rate filings in Maine were due to lower claims frequency and slower increases in the cost of medical care provided under workers' comp insurance, according to news reports.
In Vermont, the NCCI has applied for a 13 percent decrease in rates for 2009.
STATES WITH INCREASING RATES
Rates in Washington state will rise by an average of 3 percent, according to state officials, but the increase will also depend on a company's claims history and industry frequency trends. Some companies may not see any change.
"We recognize the difficult economic environment for business and workers, and wanted to limit as much as possible (the rate increase)," said Judy Schurke, director of the Washington Department of Labor and Industries.
Officials, again citing the state of the economy, used the state's reserve fund to help lessen the rate increases.
"We want to do everything we can in the short term to help businesses and workers weather the economic recession," added Schurke.
In California, home to the nation's largest state workers' comp fund with 200,000 policyholders, workers' comp insurance buyers can expect to see an average increase of 8.9 percent in their premiums.
State compensation insurance officials blamed the rate increase to the rise in medical costs, which have been going up 12 percent per year over the past two years, according to the Workers' Compensation Rating Insurance Bureau of California.
"This inflation did not affect rates while claims frequency was falling at double-digit rates, but it appears that frequency declines have dropped off to about 2 percent per year," said Jan Frank, CEO of the California State Compensation Insurance Fund.
In Florida, the Office of Insurance Regulation is considering a proposal to hike rates by 18.6 percent over two years, with an 8.9 percent increase in the first year. NCCI proposed the hike after the Florida Supreme Court in October, in Emma Murray v. Mariner Health Inc., voided state caps on attorney fees.
If approved, it would apply to the voluntary market for all new and renewal policies starting March 1, 2009. NCCI rate proposals must be approved by state insurance regulators before they take effect. Carriers are then free to raise or lower rates within the range approved by regulators.
In Minnesota, Commerce Commissioner Glenn Wilson has ordered a 2.6 percent rate hike for the assigned risk pool effective April 1, 2009. In Iowa, rate increases of 3.8 percent for the voluntary and the assigned-risk pool took effect Jan. 1, 2009.
Rates in Michigan's assigned-risk have increased and average of 1.7 percent as of Jan. 1, according to Jerry J. Stage, president of the Michigan Workers' Compensation Placement Facility.
The 1.7 percent average hike includes a 4.0 percent increase in rates for companies in the service sector, a 2.5 percent increase in rates for the contracting sector and a 0.1 percent rate increase in manufacturing sector. Rates for companies in the office and clerical industry category will not be increased.
Virginia presents a mixed bag. Premiums will rise for some businesses but fall for others.
Rates for underground coal mines, for example, will drop an average of 15.6 percent in the voluntary market and 18.7 percent in the assigned risk plan, according to the Workers' Compensation Report newsletter. Workers' comp rates for industrial classes will also decrease an average of 1.4 percent for the voluntary market and 5 percent for the assigned risk plan.
Premiums for surface coal minds and federal ("F") classes in both the voluntary market and the assigned risk plan will rise. Surface coal mine classes will see an average 9.8 percent increase in the voluntary market and 7.4 percent increase in the assigned risk plan, according to Workers' Compensation Report.
Rates for employers in the federal classification will increase an average of 5.5 percent in the voluntary market and 3.2 percent in the assigned risk plan, according to the newsletter. The changes will go into effect April 1, 2009, for new and renewal workers' comp policies.
January 8, 2009
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