Workers? comp rates on rise through mid-2001

After more than seven steady years of decline, overall workers' compensation rates rose 3.7 percent through mid-2001, according to a Missouri Department of Insurance news release.

The number of workers' comp carriers reducing and increasing rates through July actually is equal, but the far larger size of the increases pushed up the overall average, the release stated.

During 2001's first seven months, 109 insurers filed rate reductions averaging 1.8 percent with MDI, but an identical 109 companies served notice that they had raised rates an average of 9.2 percent.

Overall rates in Missouri are still almost 20 percent below the levels prevailing when the state deregulated workers' comp rates in January 1994. At its peak in 2000, the rate cuts were saving Missouri businesses a projected $180 million a year.

Overall, 290 of 322 workers comp carriers in Missouri are charging rates be-low the January 1994 level.

"For some time, the department has forecast that the many years of aggressive rate cutting eventually would end, and that time appears to have come," said MDI Director Scott B. Lakin.

Department officials noted, though, that it remains unclear whether the upturn in rates represents a long-term trend.

Data from the Missouri Department of Labor and Industrial Relations, which handles worker claims, does not show significant increases in injuries, claims filed and medical costs.

Lakin also announced several steps the department has taken to help business owners compare costs for workers' comp coverage, which pays for medical treatment and part of the lost income for employees injured on the job.

"At this time, it is imperative that business owners shop around for this coverage, and the department makes available several tools to do just that at no charge," Lakin said.

While the end of the seven-year rate-cutting trend was inevitable, MDI offered several reasons that help explain why the overall market began posting rate increases since last September:

Losses or benefits as a percentage of premiums paid known as the loss ratio rose to 84.5 percent in 2000, up from levels of 50 percent or less in the late 1990s.

When loss ratios rise above 75 percent, rate increases are almost certain. Loss-ratio increases can occur when companies expect to pay larger benefits, charge lower premiums or a combination of the two.

Companies in 2000 reported that they had paid benefits or expected to pay benefits on injuries suffered last year of $491.7 million, or an increase of 27 percent from 1999. On the other hand, those insurers earned premiums of $581.9 million, up only 6 percent from the previous year.

Lakin noted, however, that these figures are heavily affected by company reserving practices.

If insurers over-reserve a possible reaction to poor workers' comp conditions elsewhere, like in California the loss ratios will overstate actual losses that the companies eventually will pay for injuries.

In the early 1990s, insurers responded slowly to improvements in the loss picture, and they later had to write off much of those projected losses.

Insurers nationwide had been using high rates of return from the stock market to subsidize insurance operations or generate premium for investments, but dwindling investment income and appreciation since March 2000 have prompted those insurers to raise rates.

Insurers, particularly in commercial lines like workers' comp, are emphasizing profitability higher rates over increased market share and competitive pricing, unlike in the mid- to late-1990s.

Last fall, both MDI and an industry group recommended that insurers make small reductions in rates for 2001 2.5 percent by MDI and 0.5 percent by the National Council on Compensation In-surance, the industry group allowed by state law to make rate advisories.

MDI and NCCI at that time decreased the original rate reductions forecast by the standard actuarial formula to take into account what were already obvious signs of change in the market.