Both the Missouri Department of Insurance and a key industry group are recommending that several years of workers compensation rate reductions continue into 2001.
“We have been prepared for this long cycle of rate cuts to level out eventually, but the standard indicators for setting rates continue to justify modest rate reductions next year,” said Keith Wenzel, the MDI director. The state agency is advising Missouri’s 300-plus workers’ comp insurers to cut premium rates by an average of 2.5 percent in 2001, saving businesses that buy commercial coverage a potential $14 million next year.
The National Council on Compensation Insurance, an industry-affiliated group permitted to help companies establish rates, suggested that rates decline by 0.5 percent overall.
Since January 1994—when Missouri deregulated rates for the first time in the 75-year history of workers compensation insurance—average rates have dropped 24.3 percent, cutting more than $180 million a year from the annual insurance bills of Missouri businesses.
This seven-year stretch of relief contrasts with double-digit increases in the 1980s and early 1990s. Through October this year, 164 insurers reduced rates an average of 7.2 percent for Missouri policyholders; 73 raised rates by 7.8 percent, according to company filings with MDI. Overall, 285 companies- almost every insurer writing policies for Missouri businesses- are using rates below what they charged in 1994.
The 1993 law that deregulated pricing also allowed MDI and NCCI to advise insurers on the underlying loss factors that largely determine rates; many smaller insurers or those with few Missouri policyholders otherwise have difficulty setting rates that reflect the state’s experience.
MDI’s cumulative advisories to the industry have matched actual changes in the overall market with the agency suggesting cuts of 25 percent since 1994. NCCI’s pricing advisories have lagged behind overall reductions that companies have made, totaling 20 percent since 1994. But the NCCI figures are skewed because in 1994, the first year of deregulation, it suggested rate increases of 19.4 percent, which the industry largely did not follow.
Since then, NCCI has compensated with advisories that cut rates by 33 percent. Both the NCCI and MDI reduced the size of their recommended rate reductions for 2001 because of recent trends in the workers comp market. NCCI noted that while the percentage of premiums paid to injured workers for lost income remained at its lowest level since the mid-1980s, medical treatment costs continue to increase.
Unlike MDI, the industry group breaks down its advisories into separate recommendations for five types of employees. It recommended a 2001 increase of 0.2 percent for manufacturing job classifications and 4.8 percent for miscellaneous workers. It suggested rate cuts of 1.6 percent for office and clerical workers, 1.3 percent for construction employees and 2.6 percent for those involved with goods and services.
Among the hundreds of job classifications used in setting premiums, NCCI recommended that increases range as high as 25 percent while reductions could reach 23 percent. Note: Technically, the advisories cover “loss-costs,” or the benefits and directly related expenses paid and incurred by insurers for accidents in the coming year, regardless of when claims are filed or benefits are paid. But loss-costs changes have closely tracked actual rates, or premiums, and usually are perceived as premium projections by the general public.
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