State regulators and the insurance industry’s principal trade group have called for a reduction in Missouri workers’ compensation insurance rates, providing financial relief for the state’s business community, Gov. Bob Holden announced. The announcement follows an 18 percent reduction in workplace injuries over a two-year period.
The National Council on Compensation Insurers (NCCI) — the private trade group — is advising companies that costs underlying workers’ compensation rates should drop an average of 1.4 percent in 2004.
Based on a consulting actuary’s recommendation, the Missouri Department of Insurance’s (MDI) projects that companies could reduce rates up to 11.1 percent from current levels and still cover expenses and reasonable profit.
“Management and employees continue to reduce injuries, allowing workers’ compensation costs to fall despite rising medical costs to treat injured workers,” Holden said. “We have the best of both worlds when businesses control insurance costs by preventing injuries.
“These numbers confirm that Missouri continues to have a healthy workers’ compensation environment for business — both for companies now operating here and those looking to relocate or expand.”
Scott Lakin, MDI’s director, said his agency’s analysis indicates claims frequency has been falling 5.9 percent a year in Missouri since 1993 while the cost of claims, driven largely by medical expenses, has been rising at 2.3 percent annually. Compared to the eight surrounding states, Missouri has the second lowest claim frequency.
According to the Missouri Division of Workers Compensation, workplace injury reports dropped from 174,726 in fiscal 2001 to 144,025 in 2003, or almost 18 percent.
NCCI anticipates that average claim and adjustment costs for workers’ compensation coverage statewide will drop from $2 to $1.97 for every $100 of payroll in 2004; MDI projects a reduction to $1.78. Insurers then add administrative expenses and profit margins for the final rate.
The NCCI also recommended average costs for industry sectors in 2004, including reductions of 2.3 percent for manufacturing; 3.7 percent for goods and services; 0.8 percent for contracting; and 2.1 percent for “miscellaneous” workers. Office and clerical workers’ underlying costs would increase, by 5.2 percent.
Individual companies’ rate change will differ from the average, based on their company’s ratemaking practices, their own claims histories and the statewide experience for employees similar to their workforces.
Insurers so far this year increased rates an average of 14.7 percent — which Lakin described as “well in excess” of projected losses.
Lakin said NCCI, the state and insurers had not anticipated increases in medical and wage inflation would more than offset the decline in injuries from 2000 to 2002. Rates then became inadequate.
But Lakin said insurers had overreacted to that shortfall and raised rates higher than either MDI’s 2003 recommendation of 7.6 percent or NCCI’s 13.8 percent. At the time, MDI’s actuary indicated that the 7.6 percent should be a one-time adjustment to make up for inadequate rates, not a trend — and that projection appears correct.
The return to stable or declining workers’ compensation rates in Missouri was signaled this spring when rates were cut an average 0.4 percent for 5,400 businesses in the state “pool,” which provides coverage when firms cannot find regular commercial policies. Travelers Commercial Casualty Co., which administers the pool, requested that rate cut, which MDI approved.
Missouri law allows the NCCI and MDI to advise companies on the underlying “loss costs” so they can set rates. Without that provision, anti-trust laws would not permit NCCI’s advisory, and many of Missouri’s 310 workers’ compensation insurers would not have enough information to prudently set rates. Insurers and self-insured employers can choose either set of figures or calculate their own. Most companies rely on the NCCI projections, although the state’s largest insurer – Missouri Employers Mutual Insurance Co. – uses its own data.
MDI contracted with EPIC Actuaries, LLC and veteran workers’ compensation actuary Richard Hofmann to produce the analysis and executive summary, which is posted on the Web. NCCI would not permit the Internet posting of its analysis, although it is available for public inspection in the MDI offices in Jefferson City.
Technically, the MDI and NCCI advisories are based on “loss costs,” which are benefits paid to workers for lost income and health care plus expenses for adjusting claims. Insurers later add in administrative expenses and profit margins to calculate final rates charged to employers.
However, because these add-ons do not change dramatically from year to year, revisions in loss costs have generally been synonymous with average rate changes.
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