NU Online News Service, Sept. 20, 1:30 p.m.EDT

A new study says rising workers' compensation premiums are moreclosely associated with decreases in the Dow Jones IndustrialAverage and interest rates on U.S. Treasury bonds rather thanhigher claims payments, an assertion challenged by an industryassociation.

The study was released by the University of California's UCDavis Center for Healthcare Policy Research, which conductsresearch on health-care access, delivery, costs, outcomes andpolicy.

J. Paul Leigh, UC Davis professor of public health sciences andsenior author of the study, says, “Insurance companies appear tohave been setting premiums according to their returns on the stockand bond markets, not according to the number of claims they have.They invest because they need a financial cushion to pay for claimsand, if they lose, raise premiums to recoup their losses.”

UC Davis says it examined U.S. Bureau of Labor Statistics dataon incidence rates for injuries and illnesses, along with data fromthe National Academy of Social Insurance on workers' compensationcosts to employers and benefits to workers and medical providersfrom 1973 through 2007. The information was compared with Dow JonesIndustrial Average indices and Treasury bond interest rates.

UC Davis says its researchers found that while premiumsincreased from 1992-2007, claims decreased 1 to 2 percent eachyear. Claims for serious illnesses and injuries varied, butdecreased overall. Furthermore, UC Davis says that for the entire35-year timeframe of the study, rising premium rates were closelylinked with the DJIA or Treasury bonds. “As either the Dow orinterest rates on Treasury bonds fell, premiums rose, and viceversa,” UC Davis says.

Leigh contends that understanding workers' compensation trendsis important so policymakers can establish regulations that protectworkers and contain costs.

“Insurance commissioners and legislators who regulate premiumincreases should pay greater attention to trends in claims ratherthan to insurance companies' returns on investments in allowingpremium increases,” he says. “More effort should also be directedtoward policing contractors and smaller businesses to assure theyaren't circumventing workers' compensation laws.”

However, Trey Gillespie, senior workers' compensation directorfor the Property Casualty Insurers Association of America (PCI),states that insurers' rates are based on loss-cost data, which isbased on claims data and not investment income or losses.

He also points to medical inflation as a factor that impactsworkers' comp rates. “The study seems to overlook and minimizethe impact of medical inflation on rising workers' compensationloss costs,” he says. “Medical costs in the workers' compensationsystem grow faster than the consumer price index and the medicalprice index and have grown to 59-60 percent of the total workers'compensation benefit costs nationally.”

He notes that employers have worked with insurers to implementsafety programs and prevent injuries, but lower claim frequency hasbeen offset by an increase in the average medical cost per losttime, from $8,200 per claim in 1991 to $27,700 per claim in2010.

Regarding the correlation to the stock market, Gillespie says,“Nationally, workers' compensation premiums are down 29.3 percentfor the period running from 2005-2010. This includes a period oftime in which investment income was down as a result of the poorfinancial markets.”

Gillespie also says insurance carriers have been operating atcalendar-year loss ratios that have exceeded 100 every year since2006.