Workers' compensation rates may benefit from reform

The average rate increase for workers' compensation insurance in 2003 isn't expected to be significantly more severe than 2002's 7.3 percent hike, however, insured businesses will know a lot more about their rates after this week.

The state plans to announce its loss cost advisory for workers' comp Jan. 6, a process that has been delayed this year.

"Although the National Council on Compensation Insurance provided the department with numbers early, the data that the actuary needed to review the numbers did not come through until about Dec. 10," said Randy McConnell, communications director for the Missouri Department of Insurance.

Missouri law requires that the MDI and NCCI numbers be circulated simultaneously to the insurance companies.

"Because of the delays in getting loss cost advisories out, we've only had three companies file rates for next year, out of 300 that write in the state," McConnell said. "Of those three, the average rate increase was 6.7 percent."

Cost drivers and reform

Workers' compensation costs and medical costs have been rising at a double-digit clip in recent years, and attorney involvement has resulted in higher claims, according to Richard Ollis, president of Ollis & Company Insurors.

"We really think that there is a very good chance for legislative reform, primarily because of the Republican control of the House and Senate now in the state of Missouri," Ollis said.

One major issue in rising costs is the wording of Missouri's workers' comp law.

The crux of the problem "is a simple word whether (one's employment) is a' major cause of the accident or the' major cause of the incident." Ollis said.

"That is a huge difference on a workers' comp claim."

Most businesses don't have a problem with paying to treat someone who is injured at work, "however, they do have a problem paying for an injury that happens somewhere else and was just aggravated at work," Ollis said.

"The way the current statute is written makes the system a little bit ripe for abuse," he added.

Impact of changes

If Missouri legislators do change the law, it's difficult to say how or how quickly the insurance industry will react, McConnell said.

"Insurance companies like to see some tangible evidence that their costs are decreasing before they cut prices."

In some cases, that can take years. "To give you an example, earlier this year there was an enormous battle in the state of Nevada on medical malpractice insurance," McConnell said.

"The state ended up adopting virtually all of the changes recommended by the insurance industry, and the day after the bill was signed the industry announced that it would take three to four years for rates to come down to reflect those changes. Obviously, many people in Nevada in public policy making positions felt they'd bought a pig in a poke," he added.

Missouri businesses probably will not have to wait that long to see an effect from changing its workers' comp law. There may be some immediate impact, but the greatest effect will occur within one to three years, Ollis said.

Also, McConnell cautions that, depending on how the law is rewritten, businesses could lose what they make up in lower rates through litigation losses.

"If they were thrown out of the workers' compensation system, those injuries would be eligible to go to court," Mc Connell said.

"People sometimes forget that workers compensation was a system that was set up to (avoid court action leading to) a potentially unlimited settlement for an injury that occurred on the job."

Time to shop around

Deregulation in 1994 sent rates downward, but as of mid-2000, the rate decline bottomed out, McConnell said. Up to that point, rates had shrunk by 25 percent.

In 2001, rates went up an average of 2.5 percent, based on insurance company filings with MDI, and the average rate increase for 2002 was 7.3 percent.

When rates were declining for everyone, the department encouraged people to shop around, but there was very little incentive to do so, McConnell said, because no matter what a company did, "unless you had a bad accident your rates went down from year to year."

Now, "If your rates start up, you really need to shop around. This is the period of time when those shopping skills are mandatory."

A good place to start, he said, is at www.insurance.state.mo.us/consumer/ wcindex.htm, the workers' compensation page for the Department of Insurance.

"If you have a job category, you can call up all the companies for that job category and rank them and see who offers you the best deal," McConnell said.