At a recent public hearing, Massachusetts Attorney General Martha Coakley’s office expressed its opposition to the workers’ compensation average rate increase proposal and argued that the rate should be lowered instead.
The Attorney General’s office expressed its view at the Massachusetts Division of Insurance hearing on Jan. 30. The hearing provided interested parties an opportunity to provide testimony regarding a proposal by the Workers’ Compensation Rating and Inspection Bureau of Massachusetts (WCRIB) to raise the state’s average worker’s comp rate by 7.7 percent.
The hearings are expected to continue later this month or in March, with WCRIB presenting its case for a 7.7 percent rate increase. Afterwards, the State Rating Bureau and the Attorney General’s office will release their recommendations and make their cases.
If WCRIB’s proposal is approved, it would be the state’s first workers’ comp average rate increase in more than 10 years. WCRIB’s last filing in 2012, which requested an 18.8 percent average rate hike, was rejected by regulators.
“It is the Attorney General’s view that the insurers’ requested 7.7 percent workers’ compensation rate increase is excessive and should be disapproved,” said Monica Brookman, deputy chief of the Insurance and Financial Services Division at the Office of the Attorney General, who appeared at the Jan. 30 hearing on behalf of Attorney General Coakley.
“In fact, if any rate change is needed, it is a reduction, not an increase, in rates,” Brookman argued.
Workers’ comp insurance is a cost of doing business in Massachusetts, and it directly affects companies’ ability to stay in business, to create jobs, and to pay competitive wages. It also increases the prices consumers pay for goods and services in Massachusetts, she said.
Brookman estimated that if approved, a 7.7 percent average rate hike would increase the cost of doing business in Massachusetts by about $75 million.
Potential Impact on Small Businesses
Further, the burden of higher costs would fall disproportionately on small businesses, she argued. “Because large businesses often receive preferential rate treatment, this increase will fall disproportionately on small businesses,” she told the regulators. “In the current economy, many small businesses are struggling, and unemployment is high. This is not the time to unfairly increase the cost of doing business in Massachusetts.”
Brookman also argued that the proposed increase is particularly inappropriate because it is based not on any projected increase in claims payments which are the underlying purpose of workers’ comp insurance, but solely on the insurers’ desire to increase their level of profit in Massachusetts.
“Using the last profit provision approved by the commissioner instead of the inflated profit provision in the insurers’ filing, the indicated rate increase drops from 7.7 percent to a substantial rate reduction,” she said.
“A similar attempt by the insurers to grab more profit at the expense of other businesses in Massachusetts was rejected by the commissioner in a 2012 decision that provided explicit guidance on a reasonable profit,” Brookman said at the hearing. “Following the 2012 decision on profit and making no other changes in the filing, the insurers’ proposed rate increase turns into a substantial rate reduction.”
She said the profit earned by workers’ comp insurers in Massachusetts during the last 10 years has been higher than those earned by workers’ comp insurers countrywide. One indicator of the healthy profitability of workers’ comp insurance in Massachusetts is the behavior of voluntary rate deviations, which have risen steadily over the last few years, she said.
“Nor is the problem workers’ comp losses. Even in the insurers’ filing, the net loss trend is negative,” Brookman added. “There is no need for a rate increase.”
“In this proceeding, we will ask the commissioner to reject the insurers’ proposed 7.7 percent increase and ensure that Massachusetts employers do not pay excessive rates,” she told the regulators.
MAIA: Worker’ Comp Market Deteriorating
Also speaking at the hearing was Frank Mancini, president and chief executive officer of the Massachusetts Association of Insurance Agents (MAIA), a statewide trade association representing 1,400 member agencies and their 10,000 employees. In his testimony, Mancini warned regulators that Massachusetts’ workers’ comp market is deteriorating.
Independent insurance agents write and service over two-thirds of the workers’ comp direct written premium in Massachusetts, MAIA’s Mancini noted. Because of the large market share of workers’ comp business handled by independent insurance agents, MAIA members have a firsthand knowledge of the state of the workers’ comp market in Massachusetts, he said, “and our members tell us that the market is unhealthy and is deteriorating.”
MAIA members deem the market as unhealthy because they are seeing fewer and fewer choices available to their clients, Mancini noted. “Our members tell us that many companies are tightening their underwriting, non-renewing more business than usual, and reducing or eliminating deviations enjoyed by safety-conscious insureds,” he said.
“Deviations provide incentives to insureds to do all they can to reduce losses and, in turn, their workers’ compensation premiums,” Mancini said. “With disappearing deviations goes the incentive for the client to put forth the effort to reduce losses.”
Another sign of an unhealthy marketplace is the increased number of risks being placed in the workers’ compensation assigned risk pool, he commented. Recent data released by the Workers’ Compensation Rating and Inspection Bureau indicates that one out of every four employers in Massachusetts is in the pool.
“Our members have advised us that business is forced to the pool at levels they haven’t observed in a decade,” Mancini said at the hearing. “And these are not just risks that find themselves in the pool because of the nature of their business, but rather risks that would normally find a home in the voluntary market.”
Mancini said the numbers bear out what MAIA members are observing in the marketplace. Recent WCRIB data indicates that as of Oct. 2013, 16.9 percent of the workers’ comp written premium in the state was in the assigned risk pool. This amount represents a 65 percent increase in written premium in the pool over a 30-month period beginning in April 2011, when the written premium in the pool was at 10.2 percent, he noted.
And while assigned risk pool premiums match those in the voluntary market, for the 50,000 Massachusetts employers who find themselves in the pool, there are many drawbacks that come with the assignment, he observed.
Employers in the pool have no choice of company, and pool policies are only for Massachusetts exposures, which presents a problem for insureds with out-of-state operations. Further, there are no dividends or deviations available, and there are only limited payment plans available, particularly for smaller risks with under $10,000 in premium.
Another issue with the assigned risk pool is the inability to obtain certificates of insurance immediately, which creates an uncompetitive situation for some insureds, particularly contractors, Mancini said.
“So as more and more employers are forced into the assigned risk pool, often for no fault of their own, these insureds now find themselves with little, if any, flexibility in their workers’ compensation programs,” Mancini said.
MAIA is not in a position to actuarially comment on the rate filing made by the WCRIB, he told regulators. “However, we are in the best position to advise you that independent insurance agents — who deal in the workers’ compensation marketplace every day with insurers and employers — are concerned that without rate relief the workers’ compensation market will continue to shrink, resulting in fewer choices in companies, reduced dividends and deviations, more business in the pool, and all the drawbacks that go with that assignment,” Mancini said.
Commission Rates Study
MAIA’s Mancini also spoke at the hearing about commission rates for agents. In its filing, WCRIB also included a study that found commission rates for independent agents in Massachusetts for writing and servicing workers’ comp insurance are reasonable and that producer markets for workers’ comp remain competitive. The study was conducted by Sharon Tennyson, a professor in the Department of Policy Analysis and Management at Cornell University.
“We reviewed the study performed by Prof. Sharon Tennyson and view her findings as persuasive. We can attest that the summary and conclusion of her study is accurate, particularly regarding competition among agencies to write workers’ compensation insurance,” Mancini said.
Workers’ compensation is one of the most demanding lines of insurance to service, Mancini commented. And independent insurance agencies add great value to the process, working with the employer/insured and the company to assure that a risk has met all the necessary requirements to write the policy, he said.
These efforts take an added importance for employer/insureds who now find themselves in the assigned risk pool, which involves more rigid placement requirements, he added.
Independent insurance agencies well earn the commissions paid to them for writing and servicing workers’ compensation insurance, Mancini said.
“The great majority of Massachusetts employers utilize the services of independent insurance agencies to assist them with their workers’ compensation insurance,” he said. “Maintaining adequate and reasonable commission levels for workers’ compensation insurance will assure that the value provided by independent insurance agencies will be preserved and employers will have access to the expertise offered by agencies in the workers’ compensation marketplace.”