Slogging Away in Workers’ Comp

When will the workers’ comp market get a break? Claim costs are climbing. Litigation is lingering. Rates are rising but are still insufficient. Legislation has yet to provide a measure of relief for insurers. And of course, the cooling economy is not helping matters for anyone.

It’s never a good sign when the industry’s oldest rating bureau, A.M. Best, pronounces a “dim view” of the industry’s expected short-term results. The California comp market may have seen some improvement in pricing over the last 18 months, but it’s nothing more than a drop in the bucket for a market with a reserve deficiency of $7.1 billion as of year-end 2000.

According to a new study released by the Workers’ Compensation Research Institute, claim costs increased by 11 percent between 1997 and 1998 (as of 1999 experience). Both medical costs and income benefit costs grew significantly.

Dr. Richard Victor, executive director of the Cambridge, Mass.-based WCRI, pointed to possible “growing dysfunction in the way the system handles return to work, termination of benefits and award of permanent disability benefits” as the cause of the increase. Victor suggested that “policymakers focus their inquiry on improving the functioning of the system in resolving issues.”

California wins the distinction of having the most cost drivers out of the eight states studied (Connecticut, Florida, Georgia, Massachusetts, Pennsylvania, Texas and Wisconsin). Cost drivers include: high and lengthening time away from work; a high and growing share of claims receiving permanent disability payments or lump sum settlements; high and growing benefit delivery expenses (litigation, claim adjusting, medical cost containment expenses); frequent use of relatively expensive vocational rehabilitation services; and increasing litigation.

Litigation continues to burden the industry, especially in California where the WCRI deems it “frequent and growing.” The WCRI measures the rise in litigation by the percentage of claims involving defense attorneys—26 percent of 1996 claims as of mid-1999, up five points from 1994 claims.

However, recent events did include one bright spot for workers’ comp carriers: the California State Supreme Court unanimously ruled in Camargo vs. Tjaarda Dairy that businesses hiring contractors to perform work are not liable if an employee of the contractor is hurt or killed on the job. “The hirer should not have to pay for injuries caused by the contractor’s negligent performance, because the workers’ compensation system already covers those injuries,” wrote Justice Janice Rogers Brown.

The decision was commended by the American Insurance Association, which held that it significantly reaffirms the principle of exclusive remedy, “the cornerstone of the workers’ comp system.”

And right now we need our cornerstones, if we ever hope to see the tide turn.

Topics California Workers' Compensation