Over the last few years, buyers have enjoyed declining rates for their Workers' Compensation Insurance. In spite of the fact that the commissioner did not approve an increase in rates for January 2010, many Insurers have filed rate increases. Additionally, many of the insurers we represent have been talking about the need for increased rates. The questions include: What is causing this potential rate increase? What will be the ultimate impact on the cost of Workers' Compensation?
There appears to be three major factors driving increased cost. The first is deteriorating insurance company results, medical inflation, and lastly recent chinks in the Worker's Compensation reform armor. |
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Insurance Companies losing money Exhibits 4 and 5 from a recent Workers' Compensation Rating Bureau report show dramatic increase in Loss Ratios since the heydays of reform. Loss ratios have climbed from a low of 30% in 2004 to 70% in 2008. The combined Loss and Expense loss ratio for 2008 is now projected to be 111%. The combined loss ratio includes losses and insurance company expenses. The current projections indicate that insurance companies are loosing 11%; in the old days investment income would save the day, but today returns of 4 or 5% won't cover the losses. |
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Medical Inflation Medical inflation is not only a problem for Health Insurance; it also has significant impact on the cost of Workers' Compensation. We often think of Disability Payments or Death Benefits as the largest issues with Workers' Compensation cost, but Medical cost have always been the driving issue making up about 60% of the total cost. Exhibit 8.3 shows how medical costs have risen about 30% since 2004. |
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Erosion in the Reforms Plaintiff's attorneys have been looking for ways to get back into the Workers' Compensation Treasure Chest. Now, a recent decision by a Los Angeles Appeals Board is providing that opportunity. The decision is named Almaraz/ Guzman. The reform bill of a few years ago made doctors assign disability rating in accordance with specific guidelines for particular injuries. The Almaraz decision said that doctors could choose ratings from any injury type if they thought it better described the disability in question. Many feel that giving this decision back to doctors will have a serious impact on Workers' Compensation cost and could unravel the reform, which brought us the savings of recent years. |
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What can I do? Negative financial results inside the insurance industry combined with medical inflation and potential increases in Permanent Disability all appear to be causing increases in Workers' Compensation rates. Estimates vary from 5% to 25% over the next three years. How do you protect yourself? Remember a 100% Experience Modification means that you are exactly average for your industry, so you need to beat your competitors with lower cost through decreases in your Experience Modification. Now is the time to pump up your Loss Control effort, beat the industry averages, and get ahead of the competition. |
