Missouri Insurance Dept. Releases Review of Workers’ Comp Study

December 29, 2005

The Missouri Department of Insurance recently released its review of the annual loss cost filing submitted by the National Council on Compensation Insurance. Insurers and self-insurers use loss costs to establish final workers’ compensation insurance premium rates. The rates are used to price workers’ compensation insurance for Missouri employers.

The NCCI files its loss costs recommendations each year with the department for review. Effective Jan. 1, 2006, the NCCI proposes no overall change from its 2005 loss costs.

After a thorough review of the loss costs by the Department’s actuary, the department recommends that the voluntary loss costs be lower than the NCCI’s advisory loss costs in the following areas:
effect of trend provision, -2.5 percent; adjustment to remove assigned risks,-2.8 percent; additional impact of SB 1 and 130, -2.7percent.

When selecting trends, actuaries use their best judgment in order to assess the future safety, wage, judicial, economic and claims environment. In its filing, the NCCI assumes that indemnity loss ratio trends will be zero through 2006. As actual past indemnity trends have been declining, the department study assumes that indemnity loss ratios will continue to decline at a 1.5 percent annual rate. The department’s study agrees with the NCCI’s medical loss ratio trend. The NCCI estimates that combined loss costs will increase at an annual rate of 1.0 percent and the department’s study estimates the rate of increase to be 0.3 percent. Because trends apply for several years, the department believes NCCI’s loss costs are over-stated by 2.5 percent.

The NCCI includes the assigned risk pool data when it calculates its advisory loss costs. The pool is the mechanism employers use when they are required by law to purchase workers’ compensation insurance but cannot obtain it from the voluntary market. Assigned risk rates are significantly higher on average than those of the voluntary market, in large part to reflect the relatively higher losses in the pool. As the voluntary market is the primary user of advisory loss costs, and as the pool’s experience is not representative of the voluntary market, the department has removed this data in the development of its advisory loss costs. The department’s actuary recommends that loss costs be reduced 2.8 percent to delete the experience of the assigned risk pool.

Significant changes to Missouri’s workers’ compensation laws were enacted during 2005 with the passage of SB 1 and 130. In its filing, the NCCI estimates that these changes will result in only a 1 percent decrease in expected loss and loss adjustment expenses. The department believes that the savings from SB 1 and 130 is greater than projected by the NCCI. Its analysis indicates that SB 1 and 130 will reduce benefits by an additional 2.7%.

“I recommend that the NCCI review our report and revisit its analysis of SB 1 and 130,” Director Finke said. “I would advise the council to take further steps to acquire the information necessary to adequately assess the expected future impact of the bills before they file loss costs for 2007.”

A copy of the department’s report is available on the department’s Web site at: http://www.insurance.mo.gov/reports/2005/MO_WC_1.1.06.pdf

Topics Profit Loss Workers' Compensation Missouri

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