Springfield, MO

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Work comp rate increases may be on way to Ozarks

Posted online

by Sean Mcqueary

for the Business Journal

The year 2000 brings lots of anxiety about the future, most notably the Y2K scare. However, anxiety is also building about workers' compensation insurance rates, according to some national surveys. These studies warn rate increases may be headed our way and they may be right.

Over the years, workers' compensation costs have fluctuated tremendously. In the past few years, these costs have been the lowest they have been for a decade. However, for several reasons it is unrealistic to expect decreases will continue.

An analysis of workers' compensation carriers by Conning & Company, a nationally respected provider of insurance research, indicates some carriers may need to increase rates to offset the growing openness of workers' compensation losses.

The carriers are concerned about medical cost inflation and the possible judicial and legislative deterioration of the state's previous workers' compensation reforms.

The warnings in the studies have some validity. Loss ratios nationwide have been growing since 1995. A rise in the loss ratio means that the cost of paying the claims is greater than the premiums paid to the companies. Obviously, this is a big squeeze on profit margins for insurance companies.

Reserves in some insurance companies are showing signs of stress. Rates over the past three to four years have decreased while expenses for losses on workers' compensation claims have remained high.

Employers ever concerned about cost increases question when they will see increases in their workers' compensation rates. As they have seen a rise in the cost of health insurance, they anticipate an increase in workers' compensation costs, as well.

For most employers things are still looking good. Missouri is one of the most competitive markets for workers' compensation. Rates are expected to level out through the year 2000 for most workers' compensation providers, although a slight increase may be required by some.

A bill put into effect Jan. 1, 1999, will also contribute to the leveling of workers' compensation costs. This bill was designed to help level the fluctuation of Missouri's workers' compensation rates. The Missouri Division of Insurance now limits the amount of scheduled credit insurance companies can apply to an employer's workers' compensation premium.

In 1998, insurance companies could apply a credit of up to 45 percent of an employer's premium if it qualified. To qualify, a company had to maintain a good loss history, safety programs, a clean workplace, and a safe working environment. The new law limits the credit to 35 percent.

This credit limit will drop again Jan. 1, 2000. On that date the Missouri Division of Insurance will limit the scheduled credit to 25 percent. The goal of this limit is to stabilize the workers' compensation market by keeping an optimum degree of competition in the state.

All of these factors contribute to the leveling of the cost of workers' compensation insurance in the near future. This should ensure a strong, healthy, voluntary workers' compensation market, avoiding the extreme rate fluctuation seen in the past few years.

(Sean Mcqueary is a commercial lines account executive with BPJ Insurance in Springfield.)

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