Workers' Comp Rates Drop Again in 2007

Workers' Comp Rates Drop Again in 2007
Employers paying less for coverage while insurers are making less profit
Sacramento Business Journal - by Kelly Johnson Staff writer
Friday, April 4, 2008

California employers in 2007 again paid less for workers' compensation coverage than they had the prior year, while the number of claims statewide continued to decline and total claim losses stabilized.

Because rates are dropping in the mandatory insurance program to assist workers injured on the job, insurers are making less profit, according to a report released this week.

The Workers' Compensation Insurance Rating Bureau of California, which tracks trends in the program and advises the state, reviewed data from insurers who wrote all of the coverage in California.

The findings indicate that workers' comp is returning to business as usual, some system observers said.

Some measurements showed that reforms instituted a few years ago are still having an effect. For example, premium written last year was less than in 2006, as were the average statewide rate and the total number of workers' comp claims.

"We're still seeing the impact of the reforms moving through the system," bureau spokesman Jack Hannan said.

Other measurements, however, showed that reforms have already kicked in, and at least some aspects of the system are heading back to historical norms. Indemnity average costs per claim went up in 2007, and workers' comp insurers spent a larger percentage of the money they collected on claims and expenses than the previous year. That's because they're collecting less from employers.

"The system is returning to normalcy," said Nicole Mahrt, spokeswoman for the American Insurance Association, a trade group.

The market is healthy and competitive, she said, and the report's findings demonstrate that the reforms worked and should be kept intact.

The amount employers pay for coverage is becoming more aligned with insurers' costs, said Jerry Azevedo, a spokesman for the Workers' Compensation Action Network, a group of employers, insurers and nonprofits. Reforms made the system predictable and consistent, and it must remain so, without any court case or legislation to throw things out of whack, he said.

But injured workers and their attorneys have long said that the reforms went too far and have hurt people injured on the job.

The Rating Bureau's findings include:

California total premium for 2007 is estimated to be $12.6 billion, which is about 23 percent below the amount reported in 2006.

Employers paid an average of $2.44 for workers' comp per every $100 of payroll for the second half of last year, 26 percent below the same period in 2006 -- and down 62 percent from the second half of 2003.

July 1, 2003, is considered to be the high point for workers' comp system costs, before reforms began to take effect.

Indemnity claim frequency for accidents in 2007 is estimated to be down 6 percent from the year before, about one-third of the all-time high in 1991, and 44 percent below the level in 2002.

The bureau projects the total statewide losses for accidents in 2007 will be $6.3 billion, the same as 2006 and almost 50 percent less than 2002.

The average cost of a 2007 indemnity claim will be an estimated $42,000, the second consecutive increase after sharp declines in 2004 and 2005. The amount for 2006 was $39,457. The lowest amount in many years came in 2005, at $35,105.

Workers' comp insurers are still making money on each dollar of premium they collect, but not as much. For 2007 accidents, insurers spent 78 cents on claims and expenses for every dollar of premium collected. In 2006 the amount was 65 cents. While the combined loss and expense ratio was higher in 2007, it is the fifth consecutive accident year with ratios below 100 percent, after eight consecutive years higher than 100 percent.

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