NU Online News Service, May 23, 4:08 p.m. EDT--Workers' compensation premiums for employers in Massachusetts will decrease three percent in September, despite concerns about rate inadequacy.

The decrease is the result of an agreement between the Division of Insurance's State Rating Bureau, the Workers' Compensation Rating and Inspection Bureau, and state Attorney General Tom Reilly.

"We are pleased to reach an agreement that will lower the cost of workers' compensation insurance and lessen the burden placed on Massachusetts businesses," Mr. Reilly said.

According to Mr. Reilly, the three percent rate reduction filed Friday will save Massachusetts businesses an estimated $30 million.

"Massachusetts is already an expensive place to do business--we must do all we can to help lower these costs to help our companies grow and create jobs," he said.

The reduction, however, could lead to greater difficulties in the state's workers' compensation market, according to Paul Meagher, president of the Workers' Compensation Rating and Inspection Bureau.

The Bureau, Mr. Meagher said, originally had sought a rate increase of one percent in its March rate filing. Its decision to go along with the three percent decrease, he added, was made "in order to avoid a lengthy rate case" and to provide employers and insurers with as much time as possible to prepare for the change.

Mr. Meagher expressed concern regarding the effect the decrease could have on what he considers an already eroding market.

"Although the Bureau believes it is beneficial to have reached an early resolution of the 2005 rate case, we remain concerned about workers' compensation rate adequacy in Massachusetts, which has been eroded by significant increases in average indemnity and medical benefits which have increased at a rate of 9.6 percent and 9.8 percent respectively over the last five years," he said.

Mr. Meagher warned that, "An inadequate rate level could lead to increased instability in the state's workers' compensation voluntary market, which would drive more employers into the residual market."

The residual market, Mr. Meagher said, already has grown dramatically in the past five years, from four percent of the market in 1999 to 20 percent this year.

Also of concern, he added, is that Congress still has not decided the fate of the Terrorism Risk Insurance Act, which provides a federal backstop for insurance losses after a terrorist attack and is set to expire at the end of the year.

"As a result," of the program's uncertain fate, Mr. Meagher said, "workers' compensation insurers must continue to provide mandatory coverage without any assurance of a federal insurance backstop after the end of the year."

The bureau also has been directed by state Insurance Commissioner Julianne M. Bowler to take steps to improve the quality of data used in future rate cases through independent data audits.

Irregularities were found in the data for American International Group, and a hearing on those irregularities held in February remains open while the State Rating Bureau continues to review the insurer's reported data.

Special Reports /

Massachusetts Comp Rates To Drop 3%

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