Insuring Success: Workers' compensation rates likely to rise in 2001

The workers' compensation market in Missouri is changing. Several workers' compensation carriers' ratings have been downgraded, and a few have even been forced to suspend writing coverage. Losses compared to premiums have soared over the past few years.

Meanwhile, the Missouri Department of Insurance has issued a misleading news release that rate reductions should continue into 2001. What world are they living in? The facts and marketplace indicate an upward trend in pricing.

In the early 1990s, Missouri deregulated workers' comp rates and enacted reforms. During the past seven years, increased competition and reforms have driven premiums down. Workers' compensation rates have dropped an average of 24.3 percent during this time period. Employers also have instituted loss control programs that have positively affected their losses.

Unfortunately, the losses and expenses have now surpassed the premiums associated with writing workers' comp policies. This has created an unprofitable situation for work comp carriers in Missouri. In fact, on a nationwide basis, losses and expenses compared to premiums are expected to top 135 percent for accident year 1999, according to the National Council on Compensation Insurance.

A recent survey by Hartford, Conn.-based Conning and Company, which polled a group of workers' comp insurers, found that 34.4 percent said that they would raise rates by 11 percent to 20 percent. Another 34.4 percent said they would increase rates by 1 percent to 10 percent, 15.6 percent said rates would stay the same, and 15.6 percent indicated there would be a decrease.

Insurance companies are becoming much more selective about the accounts they quote and write coverage for. High-hazard industries and companies with poor loss history are being hit the hardest. Trucking, emergency services, construction, employee leasing and nursing home firms are some of the classes of business that will probably experience the greatest impact. Insurance companies will scrutinize these employers' safety programs, loss history, reporting and accident investigation procedures before offering coverage.

To combat rising costs, employers need to prepare their businesses for the marketplace. Items to provide to the broker include:

A written safety program, including an active safety committee, which meets regularly.

Five years of complete and up-to-date loss information.

Written internal claims-reporting procedures, including a company-designated physician or managed care organization for all work-related injuries.

Written accident investigation procedures with a diagram of the accident, witness statements, pictures, and a detailed narrative of the accident, including the injured employee's perception of how it could have been avoided.

Written hiring procedures and documentation on any pre-employment physical exams, background checks or drug testing.

Other workers' compensation developments in Missouri include an investigation of 20 to 30 insurers. A managed care organization, Matrix, has filed a complaint accusing insurance carriers of using fraud to circumvent the workers' compensation law.

Managed care organizations typically have arrangements with medical providers and employers that result in a volume of business for the provider and discounts on medical bills for the employer. The MCO charges a fee to the employer for this discounting service. In the state of Missouri, the Department of Insurance is required to set rules under the statute, which reads "fees charged by a managed care organization shall be reimbursed by an employer's workers' compensation insurer."

To date, the Insurance Department has not set payment regulations for insurers to reimburse MCO fees. As a result, many insurance companies are not paying those fees.

Martin Estepp, president of Matrix MCO in St. Louis, has filed a complaint because he contends that insurance companies are paying medical bills in full, without discounts, directly to providers rather than dealing with MCOs and paying them for their cost-reduction work. Their fraud, he said in a recent article published in the National Underwriter, involves causing rates to go up for employers by overpaying on medical bills inflating losses, which impacts rates.

Rather than being caught in the middle, businesses should check with their insurance carrier to get approval of the MCO they would like to use. Some carriers have contracts with several MCOs while others have their own network.

The latest proposed rules would allow an insurance carrier to ignore the bills of an MCO selected by an employer, but only if the insurance carrier made it clear that this was its policy before the employer contracted with the MCO. If the insurance carrier then refuses to pay the MCO, the employer may be responsible for the fees.

The key to adapting in this changing workers' compensation environment is to be informed and know how to play the game.

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