An average 9.1 percent increase in New York State’s workers compensation loss costs is scheduled to go into effect Oct. 1. The planned change was previously approved by the New York State Insurance Department in mid-July.
Back in May, the New York Compensation Insurance Rating Board, which serves as the private rate service organization for workers’ comp in New York State, submitted a rate filing application for a proposed 10.7 percent increase in manual loss costs, with an overall loss cost increase of 10.4 percent. In July, the board filed an amendment to the filing, which lowered the overall requested loss cost increase from 10.4 percent to 9.1 percent. In July, Insurance Superintendent James Wrynn reviewed the board’s application and approved the amended filing with the effective date of October 1, according to New York State Insurance Department.
According to the New York State law, loss cost changes must have the insurance department’s approval before implementation.
“Employers can expect to experience, on average, the approved overall change of plus 9.1 percent,” said Ziv Kimmel, director of actuarial research at the New York Compensation Insurance Rating Board. “However, some employers may experience higher increases, and some may experience lower increases or even decreases, depending on the type of occupational classification of their employees,” he told Insurance Journal.
Insurers’ Results Worsen
Insurers’ results have deteriorated “significantly” in the past year, he said. According to the latest results, in calendar year 2010, the workers compensation line in New York State experienced a loss ratio of over 95 percent.
It is also important to note, he added, that the approved loss costs serve as a benchmark for the carriers, or a starting point, in determining the final rates for the policyholders. “Each carrier determines their own loss cost multiplier, or LCM, depending on the carrier specific expenses. The LCM may also reflect carrier specific experience, if it is significantly different than the statewide level reflected in the loss costs,” he said.
Three major components of the rate filing are experience, trend and benefits. Kimmel said analysis showed that the experience used in the filing (that of policy years 2008 and 2009, valued as of Dec. 31, 2010) has deteriorated, and contributed 4.6 percent to the overall indication.
The trend component reflects the fact that average claim costs continue to experience significant increases, he said. The approved filing includes an annual indemnity severity trend of plus 5.9 percent, and an annual medical severity trend of 6.7 percent. While claim frequency in the last few policy years continues to decline, it is decreasing at a slower rate than in prior years. The approved filing includes an annual frequency trend of minus 2.4 percent. Over the past several years, the declining claim frequency served as a significant offset to the increases in claim costs. If those frequency declines come to an end, a significant upward pressure on overall costs may result, Kimmel said.
For benefit level changes, the filing includes a provision for the increased maximum weekly benefits, as stipulated by the reform of 2007. In addition, the filing reflects anticipated savings from the recent implementation of the medical treatment guidelines, and the recent changes in the state’s medical fee schedules. Overall, benefit and regulatory changes contributed 3.3 percent to the overall indication.