Massachusetts: State considers switch to loss cost system

Proposed reforms to the Massachusetts workers' compensation system would promote competitive insurance rating among carriers by requiring them to operate more efficiently and become more customer-focused, according to an insurer advocacy group.

The American Insurance Association recently testified before the Committee on Labor and Workforce in support of House Bill 1853 and House Bill 1864. The legislation, sponsored by Rep. John W. Scibak, D-South Hadley, would move Massachusetts to a loss cost rate making system, similar to that used in 40 other jurisdictions, including all of the other New England states. Most recently, New York passed legislation establishing a loss cost workers' comp rating system in 2008.

John Murphy, vice president of AIA's northeast region, called the measures an important and necessary change to the state's workers' comp system, noting that the bills would not affect or change the benefits injured workers receive or the process through which they receive them.

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"The bills only change the way that rates for workers' compensation will be determined," he said.

Murphy explained that under the loss cost approach, the commissioner would continue to review and approve the basic building blocks of the rates, known as the loss costs, so that all companies share the common basis for making rates. The biggest difference from the current system, he said, is that under the legislation, companies would have to compete over the elements within their individual control, such as administrative costs and profit. The legislation would also establish ranges for the various components that go into making the final rate.

"Moving to a loss cost or competitively rated system will promote stability and reliability for employers and insurers as the system will be de-politicized and based on the fundamental component of insurance pricing -- the actual loss costs," Murphy said.

Read more at the WORKERSCOMP Forum^TM homepage.

October 22, 2009

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