Workers Comp Rates Easing, But Still High

Workers Comp Rates Easing, But Still High The price environment that workers compensation insurance buyers face at mid-year cant be called a softer, gentler marketplace, but conditions have eased somewhat, contend professionals in the sector.

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

Given the variegated nature of each states workers comp market and the complex factors involved in individual policies, a true consensus of the coming renewals is hard to come by. Rate reductions are possible in rare instances, but rate increases are the norm, sources say.

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

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

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

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

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

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

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

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

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

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

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 safety problems.

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

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

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

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

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

Grouping a companys workers can be a negative factor. Mr. Simon and others pointed out that companies face a very hard market if they have a concentration of employees in one location in New York City or Washington, D.C.

While the Terrorism Risk Insurance Act program has helped, availability problems remain and insurers have to be careful “not to accumulate a lot of risk in what you might perceive as a high risk terrorism area,” Mr. Zax said.

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

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

Both California and Florida are working on legislative packages to revise their comp systems and generate savings, but political observers are not expecting anything to pass in time to affect mid-year renewals.

Florida last year approved a 13 percent increase for workers comp. In California, according to an online survey published by State Senate Republicans in March, over the past three years more than 80 percent of respondents had premium increases of 50 percent or more and nearly 50 percent of those responding had increases of over 100 percent.

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

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

More than anything else, those in the comp field see medical costs, including pharmaceuticals, as a primary factor affecting the market.

Mr. Melas said there is an increased likelihood that medical costs, which arguably are not truly workers comp-related, will also have an affect. He explained that some of this comes with an older work force.

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

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