WC Rate Analysis

WC Rates on Downward Trend

Workers' compensation rate decreases are encouraging, but may not translate into lower prices for employers right away.
By: | September 19, 2014 • 5 min read

Workers’ compensation rates are finally beginning to reverse an upwards trend. Fifteen out of 20 rate and advisory loss cost filings submitted by the National Council on Compensation Insurance (NCCI) so far this year have displayed decreases. Nine out of 10 filings submitted in the risk assigned market have also reflected decreasing rates.

“It really is a fascinating dynamic,” said Eric Silverstein, risk management leader at Lockton’s Dallas office. “We’re getting close to a tipping point where, if you look at the number of states that have passed through rate decreases, it’s getting close to a majority.”

Those decreases, however, may not translate into lower prices for employers right away.

“At our annual conference, we use certain buzzwords. A couple years ago, we said the numbers were ‘conflicted.’ Last year we called them ‘encouraging.’ This year they are ‘balanced,’” said Peter Burton, senior executive for state relations at NCCI.

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Rate changes in NCCI-rated states range from an increase of 6.8 percent in D.C. to a decrease of 10.4 percent in Kansas. While a handful have posted increases or no change at all, the majority will propose rate reductions going into 2015.

“Florida just went down 2.4 percent. Oklahoma has significant reform and was down about 15 percent,” Silverstein said. “So it will vary by state and by class code within each state as well.”

“However, that doesn’t necessarily reflect into price decreases for all buyers,” he said. “Insurers have a certain amount of flexibility in their underwriting process, and they won’t necessarily use that filed rate, depending on what the particular state regulations are.”

The price that companies ultimately end up paying will be determined by their respective risk profiles. Those with positive profiles will reap the benefits of the decreased rates, while those with poor risk profiles could end up paying more.

Regulators, Silverstein said, file their rates based on results from preceding years, but insurers will ultimately price their products to anticipate future fluctuations as well.

Nonetheless, the rate decreases are encouraging signs of a softening and more competitive workers’ comp marketplace.

Economic and Market Forces

The improving economy is partly to thank. Rising employment means bigger payrolls and bigger premiums. $42 million in workers’ comp premiums have been written this cycle, which runs from July 1 to the end of next June, according to Burton.

“This is the third year in a row it’s gone up,” he said.

Good underwriting results have also contributed, as well as a decline in injury rates. According to the Bureau of Labor Statistics, “No private industry sector experienced an increase in the rate of injuries and illnesses in 2012.” The injury and illness incidence rate for 2012 was about 3.4 cases per 100 full-time workers, which “continues the pattern of statistically significant declines that, with the exception of 2011, occurred annually for the last decade.” According to Burton, some states have seen injury rates fall by as much as 58 percent.

“The frequency of loss is down,” Silverstein said. “We experienced that with our clients, and it’s now being recognized by the rating agencies.” As the economy improves, however, frequency could potentially climb up again alongside rising employment rates.

Medical and indemnity cost increases are also slowing down, contributing to the trend. Medical costs have risen an average of three percent, down from seven percent increases in past years; indemnity payments have risen only two percent, down from consistent five percent increases over the past 10 years.

The growing popularity of closed formularies could also be contributing to reduced medical costs, Silverstein said. Closed formularies deny coverage for any drugs not included in the program, such as brand name prescriptions for which cheaper, generic versions exist. Early results from states that have adopted them show reduced costs associated with prescription drugs.

“We have another 16 filings to go, and they could be different,” Burton said. “Every state is its own microcosm. But predominantly we are seeing decreases.”

Non–NCCI rated states are witnessing the same trend.

In April, the Pennsylvania Department of Insurance and Labor & Industry announced a 5.15 percent workers’ compensation rate reduction.

Pennsylvania Insurance Commissioner Michael Consedine said in a press release, “As a result of this action, we estimate that Pennsylvania employers will experience annual savings in workers’ compensation insurance costs of approximately $140 million.”

This is the third time the state has reduced rates since 2012, saving approximately $410 million for employers. Consedine called this a “very positive trend.”

In California, the Workers’ Compensation Insurance Rating Bureau (WCIRB) governing committee voted on Sept. 4 to reduce the rates originally recommended in its mid-August Pure Premium Rate Filing. The vote was based on the WCIRB Actuarial Committee’s review of new insurer experience complied in late June which shows “lower than anticipated loss development in the second quarter and some moderation in the 2013 indemnity claim frequency growth,” according to a statement from the Bureau.

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The amendment to the filing proposes premium rates that average $2.77 per $100 of payroll, down from $2.86 per $100 that was recommended in August. Even with the decrease, however, the new rate is $0.20, or 7.9 percent higher than the overall industry average of $2.57 as of July 1, 2014.

Some states will see much more significant decreases. Oregon’s base rate, for example, will decrease by an average of 5.3 percent next year, on top of a 7.6 percent decline in 2014. Employers will pay an average of only $1.27 per $100 of payroll in 2015, seven cents down from 2014.

As Okla. Insurance Commissioner John D. Doak said, “When employers pay less for workers’ compensation insurance, they can more easily grow their business, hire additional workers and expand local economies.” Over the past two years, Oklahoma has decreased its loss cost levels by about 22 percent.

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]