NCCI, Mo. Insurance Department Suggest Workers’ Comp Rate Cut for 2005

December 14, 2004

Both a national private industry group and the Department of Insurance (MDI) reportedly agree Missouri’s workers’ compensation environment has stabilized, and the state’s insurers should reduce rates in the Show Me State in 2005, according to Director Scott Lakin.

The National Council on Compensation Insurance (NCCI) – a national consortium of workers’ comp insurers – is advising its members that underlying costs should drop 1.3 percent in 2005 in Missouri.

MDI’s independent actuary recommended an even larger reduction of 7.7 percent next year in such “loss-costs” that are the primary factor in setting premiums for Missouri employers.

“These recommendations confirm that the workers’ compensation market in Missouri has stabilized after medical inflation prompted insurance carriers to raise rates substantially from 2001 to 2003,” Lakin said. “The business community has every reason to believe that the pressures on their workers’ compensation costs are now under control.”

Missouri employers on average would pay out $1.63 in benefits to injured workers under the NCCI version and $1.59 under the MDI’s calculations for every $100 of payroll.

Missouri law allows the state’s 300-plus workers’ comp insurers to rely on the NCCI, state or independent figures in developing their rates; insurers add their own administrative costs, profit and reinsurance expenses – which usually remain level — to “loss costs” in calculating final rates. State law permits NCCI and MDI to issue the annual advisories, which anti-trust laws otherwise would prohibit.

From 1995 to 2000, Missouri’s workers’ comp rates overall dropped every year. From 2001 to 2003, average rates rose 4.7 percent, 9.2 percent and 14.7 percent because of medical inflation, despite declines in the number of workplace injuries.

A year ago, both NCCI and MDI advised insurers that market conditions warranted price reductions in 2004, Lakin said, but companies retained the right to independently calculate their premiums and raised rates slightly.

Average rates in Missouri rose only 1.97 percent this year compared to 14.7 percent in 2003 – or the lowest level since 2000 and less than the projected inflation rate for 2004.

MDI has released the final figures for 2004 insurance company rate changes. Of the 300-plus workers’ comp insurers in Missouri, 110 reduced rates last year while 100 increased them. Despite a decade of inflation, 241 companies are still charging lower rates for coverage than they did in 1994, when the state deregulated workers’ comp rates.

For 2005, NCCI advised insurers to expect a 1.3 percent reduction in 2005 costs even though medical costs continue to trend upward. NCCI acknowledged favorable loss experience and declining legal and claims-handling expenses.

NCCI has recommended reductions in four of the past five years, with the lone exception of a 13.8 percent increase for 2003.

MDI’s actuary – the David Cox Co. — said commercial insurers could make steeper reductions totalling 7.7 percent in 2005 because NCCI:

* Failed to give enough weight to Missouri’s favorable workers’ comp experience record, including declining payments to workers for lost wages. MDI’s actuary, however, agreed with NCCI that medical costs continue to increase.

* Calculated its figures using information on higher-risk and -cost employers in the residual market, which cannot find regular commercial coverage. Those employers – about 5,500 statewide — must buy policies from the separate “pool” operated by Travelers Indemnity Co. under a state contract and do not affect rates in the private market.

* Overstated projected costs for legal and claims-handling expenses because the NCCI’s database excludes the more favorable experience of Missouri Employers Mutual Insurance Co., the state’s largest workers’ comp insurer.

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