Insuring Success: Work comp pricing on the rise nationwide

Contrary to an election-year press release from the Missouri Department of Insurance (SBJ July 24-30, Page 37) the workers' compensation market is changing. Recently released data is solid evidence that pricing is on the rise.

These projections, from the National Council on Compensation Insurance, were just released and are based on the 1999 accident year results. NCCI is projecting a combined ratio (losses plus expenses relative to premiums collected) at 134.6 percent. A combined ratio of 100 is the underwriting break-even.

This is a substantial, upward adjustment from an already very negative outlook for workers' compensation profitability. Insurance carriers must raise rates in order to balance this ratio.

NCCI pointed to a number of factors that are having a negative impact on the market. Nationally these are:

Excess capacity driving a very competitive pricing environment.

Claim costs that are beginning to rise at more rapid rates than in previous years.

Pending proposals for benefit increases.

Recent federal initiatives that threaten to increase claim costs, broaden compensability definitions and could create duplicate remedies.

Reform rollback proposals in 2001 state legislative sessions.

Missouri also has a number of specific factors that impact rates and benefits:

No real reform has been enacted in many years.

Attorney involvement is almost double the national average.

Claim severity is rising substantially.

Missouri's share of risky jobs is above that of the United States as a whole.

The discount that insurance companies can apply to rates in Missouri was reduced from 35 percent to 25 percent in 2000.

For the first time in almost seven years, rate increases have been filed by one-third of the Missouri insurance marketplace.

There is one favorable development among the negatives. The frequency of workplace injuries has fallen sharply for the past 10 years. It is estimated that we've had a 24 percent decline since 1990. In the future, however, if frequency levels off or begins to rise, it's possible that claim costs could rise at an even faster rate.

The recent decline in frequency of claims has been favorable, but severity is on the rise and medical costs continue to escalate.

What this means to business owners is a different insurance buying market. Underwriting procedures by insurance carriers will be stricter, with losses and written safety programs looked at with more scrutiny. Being prepared well in advance of renewal will become more critical and your agent's experience will be invaluable.

Here are a few strategies.

Start the renewal process earlier 90 to 120 days in advance.

Select an experienced insurance broker with expertise in workers' compensation.

Make sure you have a written safety program and active safety committee.

Develop a plan to reduce or eliminate safety concerns.

Monitor claims and establish accident investigation procedures.

Assign a company doctor for treatment of injuries.

Order loss information and review it regularly for accuracy and closure of claim.

Verify the accuracy of your experience modification factor (payroll classifications and losses).

Develop a training program for new employees. An inordinate number of claims occur in the first 90 days of employment.

Report fraud to the carrier and the Missouri Fraud Unit.

(Richard Ollis is a commercial insurance specialist with Ollis & Company.)