Majority of insurers lower workers' comp rates

The majority of workers' compensation insurers continue to cut rates in Missouri, but one-third of the state's insurers are raising their rates, according to a mid-year update issued by the state Department of Insurance.

Decreasing rates

With most rates now set for 2000, companies with 56 percent of the Missouri market have filed reductions; rate cuts total 24 percent since deregulation took effect in 1994.

Insurers writing most of the workers' compensation business in Missouri are continuing a six-year trend of cutting rates, based on filings in the first half of 2000, the Department of Insurance stated in a release.

The department added that figures for last year indicate that workers' compensation has become a much better insurance value for business owners because policy payouts for benefits finally have risen to historically normal levels.

Department statistics for the first half of 2000, when most rates are set for the year, show 162 of 313 workers' compensation insurers operating in Missouri filed overall rate reductions averaging 6.9 percent. Those insurers write about 56 percent of all Missouri coverage.

Since reforms took effect Jan. 1, 1994, overall workers' compensation pricing has dropped 24 percent, not counting the effects of inflation that make real premiums even less expensive.

Increasing rates

On the other hand, 66 insurers that write one-third of Missouri coverage have filed rate increases averaging 7 percent in 2000 so far. In all of 1999, only 37 insurers filed rate hikes.

These overall trends follow the department's prediction last fall that, after several years of major rate cutting, companies would moderate or forego premium changes in 2000.

While Missouri employers and workers have reduced the rate and severity of injuries in the workplace, medical costs continue to climb.

Department officials stressed that, when any Missouri business owner faces increased rates on a renewal, they should seek quotes on coverage from other insurance carriers; shopping for quotes periodically, even without a proposed rate increase, may help owners and managers find better policy costs.

Overall results

In 1993, Gov. Mel Carnahan and the Missouri General Assembly agreed to scrap the state's 75-year-old system of mandating workers' comp rates and to allow competition to hold down prices. They acted after Missouri endured several years of double-digit price increases that depressed corporate profits and employee benefits.

The Department of Insurance also released figures that show Missouri workers' compensation insurers are again paying out normal levels of benefits in relation to the premiums they charge.

In 1999, the Missouri workers' comp industry posted a "loss ratio" of 70.8 percent paying out 70.8 percent in benefits to injured workers for medical care and lost wages out of every dollar in premium collected.

Missouri workers' comp insurers have not paid out that large a percentage of premium as benefits since 1992. Recently, the loss ratios have been less than 59 percent in both 1997 and 1998, and 47.3 percent, or an all-time low, in 1996.

Despite major premium reductions since deregulation, such company moves had lagged behind the downturn in benefits paid, raising the relative costs of workers' comp protection.

This conservative approach to pricing relatively common in the insurance industry overall helped account for record profit levels, reaching 34 percent of premium, by Missouri workers' comp insurers in the mid- to late-1990s. (By contrast, Missouri insurers posted profitability marks of 8.3 percent for private passenger auto and 5.2 percent for homeowners in 1998.)

Payout rates in Missouri typically have been lower than the same workers' compensation insurers experienced nationwide Profitability figures for 1999 are not yet available from the National Association of Insurance Commissioners, but property and casualty insurers posting loss ratios of 65 percent to 75 percent typically are still highly profitable, especially if they keep administrative costs in line.

Missouri businesses paid more than $23 million less for workers' compensation coverage in 1999, compared to the year before, even though a booming economy added workers to the payroll and policy coverage.