What Does the Future Hold for Workers' Compensation Insurance Rates.

• Author: Decarlo, Donald T.
• Position: [WORKERS' COMP]

* The National Council on Compensation Insurance (NCCI) reports that workers' compensation insurance rates will again dip in most states in 2018. The report attributes this continuing decrease to two factors; (1) declines in the frequency of claims; and (2) improvement in the area of workplace safety on the part of employers. Tony Gillespie with the Property Casualty Insurers Association of America observed that "When you couple the claims frequency still going down and you have more stable medical costs and very stable indemnity costs, then you are going to keep seeing a progressive reduction in loss costs and rates."

As background, NCCI is an advisory organization the development and promulgation of workers' compensation rates in the majority of states. In most states, the NCCI and other rating organizations no longer file final recommended rates. Instead, they file actuarial "loss costs" or pure premium rates. Companies then gross up loss costs for their own particular expenses and rating policies. These insurance rates and loss costs reflect the cost of the product being insured. In the case of workers' compensation, insurance rates and loss costs reflect the costs associated with wage replacement (indemnity benefits) along with the cost of medical care and other incidental expenses associated with workplace accidents.

In 2017, of the 38 states where the NCCI made rate filings, 36 of those filings were for decreases; many of which were double digit decreases. The trend continued in 2018 where NCCI filings showed decreases proposed in 36 states. As demonstrated in the following exhibit, in 13 of those states, the rate filings decreases were greater than 10%.

In states where rates are approved by independent bureaus, there is a similar downward trend in workers' compensation rate. The New York Department of Financial Services (DFS) approved a 11.7% decrease in workers' compensation loss costs effective October 1, 2018. In New Jersey, the insurance commissioner has approved a 5.1% rate decrease for workers' compensation premiums on a new and renewal basis.

These decreases are taking place across the country. Even California which has a long history of being among the highest in terms of average insurance rates has seen a recent rate decrease. The filing recently approved to be effective Jan. 1, 2019 decreases workers' compensation loss costs an average of 11.7%. Further decreases may be in the future following evidence that medical payments for workers' compensation claims continues to fall. These reduced medical payments may be attributed to reforms enacted in 2013 along with a vibrant economy with low unemployment.

As stated at the outset, reductions in claim frequency, improved workplace safety, stability in medical and indemnity costs all contribute to the ongoing trend of decreasing workers' compensation insurance rates. But are there any issues that may portend a change for the future? Things have a way of going in cycles and workers' compensation insurance rates are no exception. The following looks at some specific areas where the potential exists to...