INDUSTRY, MO. REGULATORS AGREE COMP COSTS SHOULD FALL IN 2004:

State regulators and the insurance industry’s principal workers’ compensation trade group have called for a reduction in Missouri workers’ compensation insurance rates, providing financial relief for the state’s business community. The announcement follows an 18 percent reduction in workplace injuries over a two-year period. The National Council on Compensation Insurance (NCCI)—the private trade group—is advising companies that costs underlying workers’ compensation rates should drop an average of 1.4 percent in 2004. Based on a consulting actuary’s recommendation, the Missouri Department of Insurance (MDI) projects that companies could reduce rates up to 11.1 percent from current levels and still cover expenses and reasonable profit. Scott Lakin, MDI’s director, said his agency’s analysis indicates claims frequency has been falling 5.9 percent a year in Missouri since 1993 while the cost of claims, driven largely by medical expenses, has been rising at 2.3 percent annually. Compared to the eight surrounding states, Missouri has the second lowest claim frequency. According to the Missouri Division of Workers Compensation, workplace injury reports dropped from 174,726 in fiscal 2001 to 144,025 in 2003, or almost 18 percent. NCCI anticipates that average claim and adjustment costs for workers’ compensation coverage statewide will drop from $2 to $1.97 for every $100 of payroll in 2004; MDI projects a reduction to $1.78. Insurers then add administrative expenses and profit margins for the final rate. The NCCI also recommended average costs for industry sectors in 2004, including reductions of 2.3 percent for manufacturing; 3.7 percent for goods and services; 0.8 percent for contracting; and 2.1 percent for “miscellaneous” workers. Office and clerical workers’ underlying costs would increase, by 5.2 percent. Individual companies’ rate change will differ from the average, based on their company’s ratemaking practices, their own claims histories and the statewide experience for employees similar to their workforces. Insurers so far this year increased rates an average of 14.7 percent—which Lakin described as “well in excess” of projected losses. Lakin said NCCI, the state and insurers had not anticipated increases in medical and wage inflation would more than offset the decline in injuries from 2000 to 2002. Rates then became inadequate. But Lakin said insurers had overreacted to that shortfall and raised rates higher than either MDI’s 2003 recommendation of 7.6 percent or NCCI’s 13.8 percent. At the time, MDI’s actuary indicated that the 7.6 percent should be a one-time adjustment to make up for inadequate rates, not a trend – and that projection appears correct. The return to stable or declining workers’ compensation rates in Missouri was signaled this spring when rates were cut an average 0.4 percent for 5,400 businesses in the state pool, which provides coverage when firms cannot find regular commercial policies.

Topics Workers' Compensation Missouri