By one account, the insurance costs for manufacturers in January 2007 are still on average 25 percent higher than in 2002.
Meanwhile, the Feds reported from 2002 to 2006 a 12 percent cut in the frequency of injuries with at least one day of lost time. The National Council on Compensation Insurance says, however, that the frequency of lost time compensable injuries (generally, with at least five days' lost time) dropped by double that rate.
The cost of the average lost-time compensable claim rose, roughly wiping out the savings from lower frequency. With premium up, insurers enjoyed a net gain.
Their summer days will not last. In the last two annual filing cycles, the NCCI--projecting losses into the future--submitted 22 voluntary market filings for loss cost reductions of at least 5 percent, vs. 10 increases of at least 5 percent..
Insurer competition for market share will not only convert this loss improvement into lower premiums, but if history repeats itself for the umpteenth time premiums will continue downward beyond these NCCI projections. This is good news to insured employers, although the spoils are spread unevenly across the country.
Actuarial and Technical Solutions, which studies insurance trends among 45 states, is the source of the 2002-2007 premium estimate cited above.
The firm estimates that between the first days of 2002 and 2007, only four states experienced a net decline: Colorado, Rhode Island, and two very high cost states that went through the trauma of major reforms--California and Florida.
So is there an association between experiencing relatively high costs and legislative action? To some degree, yes. Three of the five most costly states at the outset of 2007 have recently enacted major reforms.
One is California, whose premiums were so stratospheric in 2004 that large postreform cuts of upward of 50 percent leaves it still among the most expensive states. Reforms in New York and Delaware in 2006 are too recent to have affected premiums as of early 2007.
Alaska is among the top five and so is my state of Vermont, which now is the most costly among the 45 compared. Neither the governor, nor the legislature, nor the state's chamber of commerce show any appetite to confront the problem. The state is at least a decade behind in adopting managed care provisions.
One would think this is a recipe for disaster, but Hawaii's experience suggests that costs can rise and fall without the impetus of major reform. The NCCI has been submitting declining loss estimates for Hawaii four years in a row, after large rate increases, and there has been no major legislative action.
One in-state observer told me that the NCCI's explanation of trends--a big cut in injury frequency--may not hold up when you look closely at claims behavior. This individual holds that earlier estimates of increasing costs were inaccurately high, overshooting actual trends. He thinks the state has been seeing a correction.
So, first the insurers treated themselves, and now insured employers are benefiting. Now how about the worker? California has reversed itself on some benefit cuts deemed too severe. Could this happen elsewhere?
PETER ROUSMANIERE is a Vermont-based writer and columnist for Risk & Insurance®.
December 1, 2007
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