WC On The Rebound, But Threats Loom

Calif. reforms offer relief, but concerns remain over soaring medical costs, terrorism

Insurance professionals surveying the current workers' compensation marketplace are encouraged by California reforms but concerned about terrorism, hurricane effects and soaring medical costs.

In addition, despite the push in many states to reform and make workers' comp systems more cost efficient, there are two that have serious problems--South Carolina and New York--these observers contend.

Prices for workers' comp have generally not shown the declines of other lines. Indeed, the most recent Risk and Insurance Management Society Benchmark Survey, produced by New York-based Advisen Ltd., found workers' comp premiums down by only 3.75 percent before Hurricane Katrina.

At American International Group in New York, the nation's largest workers' comp insurer, Dick Thomas, senior vice president and chief underwriting officer in the domestic brokerage group, said he expects to see "a continuing degree of conservatism in pricing workers' comp."

Joe Treacy, assistant vice president for The Hartford, the nation's fifth-largest workers' comp writer, said at this point, "overall the landscape for most carriers is pretty good" despite concerns about rising medical costs.

He noted that in states reporting to the National Council on Compensation Insurance, rates have gone down 4-to-5 percent at the same time that medical costs have increased 10.5 percent.

In California--the nation's most populous state--insurers' pure premium rate decreases have totaled 26.7 percent since 2003 reform legislation was approved, according to state officials.

However, with applicants' attorneys challenging many points of the new law, Mr. Treacy said there remains some uncertainty, although "we're cautiously optimistic."

Ed Lynch, the global practice leader for workers' comp at Marsh in New York, said California reforms had a favorable impact on pricing, adding that the brokerage has seen dividend plans being offered to entice guaranteed-cost buyers.

Both he and Mr. Treacy said the California market is highly competitive following reform.

However, if Congress fails to renew its federal backstop for terrorism insurance in the Terrorism Risk Insurance Act, which expires Dec. 31, "you will see availability problems" for workers' comp insurance, warned Mr. Treacy.

"We have to re-evaluate everything if January comes about without TRIA in some form," said Paul Ramont, vice president for workers' comp underwriting at St. Paul Travelers, the country's third-biggest writer.

AIG's Mr. Thomas said his firm since February had been carefully monitoring worker aggregate accumulations on a "target by target" basis, and has been capping its exposures.

Mr. Lynch said getting coverage for sites with large concentrations of workers had definitely become more complicated for businesses. A year ago, he noted, insurers looked carefully at work populations over 300. Now he finds they are scrutinizing even those locations with fewer than 100 workers, although it does vary based on location.

Mr. Ramont said the reforms that have taken place in Texas and California to limit costs have tended to obscure the problem of medical inflation and make the situation appear more stable than it is.

The medical cost increases, he said, are more a result of over-treatment involving items such as chiropractic visits and surgery. Carriers, Mr. Ramont noted, are watching closely the effect of California's use of American College of Occupational and Environmental Medicine guidelines to treat and evaluate injuries.

Mark Noonan, the practice leader for workers' comp at Marsh, said that the rising severity and medical cost of injuries is what is driving states to pass reform measures.

Among most of those interviewed, two states--South Carolina and New York--appeared on the radar as workers' comp trouble spots. Mr. Ramont said costs in South Carolina had "exploded," and while the state is looking for a remedy, it has so far not adopted any of the mechanisms that might help.

There are strains as well in the New York workers' comp market, he said, where the recommendation for rate increases from the state rating board have been largely ignored by regulators. AIG's Mr. Thomas said rates in New York and South Carolina "need to be increased by double digits."

In general, those interviewed said there have been no particular shifts in pricing for different occupations, with job categories with the higher injury rates continuing to involve costlier coverage.

However, Mr. Thomas said he has noticed that among large construction firms, there has been a significant safety emphasis because the big firms have learned that the amount they save in workers' comp insurance based on their loss experience "can mean how much margin they can make on the job."

Mr. Treacy mentioned that because of rising medical costs, even a small injury becomes very expensive. He said among the categories where The Hartford has an "expanding appetite" for workers' comp business is in the area of technology and financial services. For that sector, "it's a very competitive marketplace," he advised.

However, that's not the case in the view of Mr. Thomas at AIG, who said he had not seen "any change out in the marketplace suggesting certain classes are hotter."

None of those interviewed would guess what, if any, spillover there might be on the workers' comp market as the result of recent hurricane losses.

Other unanswered storm-related questions that were mentioned include the possibility of health claims by contractors whose workers are exposed to dangerous mixes of debris and pollution, and workers returning to so-called "sick buildings."

There is also the question of what sort of coverage might be available for volunteers who have arrived to help in storm-stricken areas.

"Are they covered? We've got a lot of questions," said Marsh's Mr. Lynch. "The answer is it varies state by state, and in general your home state [regulation] covers."

Caption for crazy doctor picture:

Carriers fear the market could be undermined by soaring medical care costs, potentially making even small injuries very expensive.

Infographic for page S-2: with small pix of crazy doctor

Flag: Trouble Spots

Head: What Keeps WC Carriers Up At Night?

The following problems are of continuing concern to workers' comp carriers, fearful of the impact on their bottom lines.

o Doctor Woes: Over-treatment involving chiropractic visits and surgery are sending medical care costs soaring.

o Drugs: Prescriptions are skyrocketing, sending claim costs through the roof.

o Terrorism: If Washington fails to renew TRIA, carriers warn of availability and affordability problems.

o Sorry States: At least two states--South Carolina and New York--are cited as major trouble spots in workers' comp.

o Storm Aftermath: Questions remain about workers' comp claims following the hurricanes--both for those who may have lost their jobs for good, as well as volunteers, cleanup and reconstruction workers in the impacted areas.

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WC On The Rebound, But Threats Loom

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