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Massachusetts Insurance Commissioner Julianne Bowler has approved a 3.0 percent overall average rate reduction in workers’ compensation rates, a savings of $32.6 million in premiums paid by employers. The new rates take effect in September.
The industry’s Workers Compensation Rating and Inspection Bureau of Massachusetts had requested in March that rates be increased by 1.0 percent starting Sept. 1. The Division of Insurance brokered this 3 percent cut with WCRIB along with the attorney general’s office.
Paul Meagher, president of WCRIB, said the bureau agreed to the 3 percent rate reduction in order to avoid a lengthy rate case and give employers and insurers additional time to prepare for the rate change.
This is the seventh reduction since 1994, over which period rates have dropped a cumulative 60 percent.
Ina related matter, Bowler directed WCRIB to take steps to improve the quality of data that is submitted for future rate cases. She said she wants periodic independent data audits and the results of those reported to the department.
The DOI has been questioning data submitted by American International Group. WCRIB omitted the AIG data from its filing due to the state’s concerns. State officials held a special hearing in February into the AIG’s information and that investigation remains open, according to Bowler. The new rates will be used by AIG and its affiliates in the state.
Kevin Beagan, director of the DOI’s rating bureau, said in February that his concern is in part because AIG has several companies that combined represent one of the state’s biggest workers’ comp writers. Because AIG writes so much business in the state, the figures submitted by its companies heavily influence the overall filing made by WCRB.
While the bureau agreed to the 3 percent figure, its member companies remain concerned about a rate reduction at the same time that insurers’ indemnity and medical payments are rising.
“Although the bureau believes it is beneficial to have reached an early resolution of the 2005 rate case, we remain concerned about workers’ compensation rate adequacy in Massachusetts, which has been eroded by significant increases in average indemnity and medical benefits which have increased at a rate of 9.6 percent and 9.8 percent respectively over the last five years,” said Meagher in a statement.
“An inadequate rate level could lead to increased instability in the state’s workers’ compensation voluntary market, which would drive more employers into the residual market,” he added.
The state’s residual market has grown from insuring 4 percent of the market in 1999 to 20 percent today, making it the state’s second-largest workers’ compensation insurer.
The WCRIB leader also maintained that the federal government’s failure to address the future of the Terrorism Risk Insurance Act of 2002 , which is scheduled to expire on December 31, 2005, is causing additional market uncertainty. As a result, workers’ compensation insurers must continue to provide mandatory coverage without any assurance of a federal insurance backstop after the end of this year.
The WCRIB’s proposed 1.0 percent increase in rates, if it had been approved, would have been the first increase since 2001, when the commissioner approved a 1.0 percent increase following a series of five double-digit decreases between 1993 and 1999 that cut rates by 58 percent.
Even if the WCRIB’s proposed rate increase had been approved, the rates will still be less than half of what they were 15 years ago, according to the rating bureau.