Workers Comp Rates Easing, But Still High Theprice environment that workers compensation insurance buyers faceat mid-year cant be called a softer, gentler marketplace, butconditions have eased somewhat, contend professionals in thesector.

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Where employers in some cases last year were hit with demandsfor 100 percent premium boosts, this year increases will not exceeddouble digits, industry experts contend.

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Given the variegated nature of each states workers comp marketand the complex factors involved in individual policies, a trueconsensus of the coming renewals is hard to come by. Ratereductions are possible in rare instances, but rate increases arethe norm, sources say.

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One point that all agreed on is that medical costs continue togo up sharply and drive workers comp costs with them.

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Brian Melas, senior vice president for commercial marketsadministration at Liberty Mutual Insurance Co. in Boston, predicted“rate increases into the double digits.”

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“Given loss cost trends running at nine to 10 percent, rateincreases will be running in excess of that,” he said.

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One reason rates will be maintained, according to Stanley R.Zax, the chairman and president of Zenith Insurance in WoodlandHills, Calif., is the lesson of companies that were hurt badly whenthey cut prices in the 1990s to gain market share.

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Right now, people in the business are focused on getting theunderwriting right, he said.

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Jim Henderson, president and chief operating officer of Brown& Brown in Daytona Beach, Fla., agreed: “I cant think of astate where an aggressive workers compensation writer is going togo in and underprice to pick up market share.”

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But while no one is offering radically lower rates, “theresdefinitely a deceleration in rate increases,” related Craig Simon,the managing director for the casualty marketing practice at WillisGroup in New York. “Its much slower than the previous twoyears.”

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Mr. Simon said, for the well-managed account, his firm is seeingincreases of between five and 15 percent. On the other hand, headded, “if you have bad losses or financials it could go up 25percent over last year.”

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Mr. Henderson at Brown & Brown said “pricing is all over thelot” depending on the buyers loss experience, risk type and creditrating.”

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“You have a chance to reduce cost if you practice safety,” heremarked.

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Had he seen any actual reductions? Very few, Mr. Henderson said.It could happen, he said, in the case of a company with a major“shock loss,” which had then taken major steps to remedy its safetyproblems.

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Mr. Simon at Willis said a reduction would be the exception,“but we have seen them.” Generally he said price dips would belimited to the “the good accounts.”

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Marcia Hahn, a senior vice president in the risk managementservice department of the Arthur J. Gallagher brokerage in Chicago,said she found the notion of anyone getting a reduction difficultto contemplate. “I dont see any reduction in rates at all.”

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She said she is seeing increases in the “low double-digitnumbers,” about 10 to 20 percent. In the past two months, she saidshe had seen no increases above 20 percent.

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There is beginning to be some competition and a market foraccounts “that are very clean,” Ms. Hahn said. Nevertheless shesaid she expects the hard market to last the rest of the year andthrough half of 2004.

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“Right now, if your company is in good financial condition andyour losses are under control and you dont have large aggregationsof employees, the market is more competitive,” said Mr. Simon, whodeals with clients that have a billion dollars or more inrevenue.

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Grouping a companys workers can be a negative factor. Mr. Simonand others pointed out that companies face a very hard market ifthey have a concentration of employees in one location in New YorkCity or Washington, D.C.

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While the Terrorism Risk Insurance Act program has helped,availability problems remain and insurers have to be careful “notto accumulate a lot of risk in what you might perceive as a highrisk terrorism area,” Mr. Zax said.

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Mr. Melas said that his company looks “very carefully at ourconcentration of risk and makes sure were comfortable with ourretained risk.”

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Mr. Zax noted that future regulatory changes pose “the biggestwild card” for rates.

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Both California and Florida are working on legislative packagesto revise their comp systems and generate savings, but politicalobservers are not expecting anything to pass in time to affectmid-year renewals.

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Florida last year approved a 13 percent increase for workerscomp. In California, according to an online survey published byState Senate Republicans in March, over the past three years morethan 80 percent of respondents had premium increases of 50 percentor more and nearly 50 percent of those responding had increases ofover 100 percent.

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Factors that are contributing to escalating workers compensationcosts are reinsurance and medical inflation, sources say.

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“Reinsurance has not reduced in price whatsoever and thestandard markets are passing through those costs,” said Ms.Hahn.

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More than anything else, those in the comp field see medicalcosts, including pharmaceuticals, as a primary factor affecting themarket.

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Mr. Melas said there is an increased likelihood that medicalcosts, which arguably are not truly workers comp-related, will alsohave an affect. He explained that some of this comes with an olderwork force.

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The issue arises, he said, when a worker reports an injury fromplant noise. Is the hearing loss due to aging or to the noise inthe factory?


Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, May 26, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.


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