For the first time since 1992, benefits paid to workers and employers' costs for workers' compensation rose faster than wages
by James L Nash (jnash@penton.com)
The National Academy of Social Insurance (NASI) study, which provides the only comprehensive national data on the largely state-run program, states that premiums charged by insurers rose by eight percent in 2001.
Workers compensation costs have continued to rise since 2001, and are expected to continue their ascent through 2004, according to a special report produced by Fitch Ratings. The Fitch report states that approximately two-thirds of respondents to a recent survey indicated their rates had risen by more than 10 percent for policies renewed in the first three months of 2003; there were no reports of price decreases.
Several factors account for rising rates, according to the two reports:
Stock market and interest rate declines mean that insurance companies are earning less money on their investments, forcing them to charge more to their customers;
The terrorist attacks of 2001;
Rising medical care costs;
Andrew Friedman, associate legislative counsel for Strategic Services on Unemployment and Workers' Compensation, an employer organization, suggested an additional factor behind rising rates: the weak economy.
Claim costs are adversely affected as claimants experience extended work absences that are attributed to their work injuries but really are caused by the soft job market. In addition, the downturn in employment tends to make the average cost seem larger because of reductions in payrolls.
"The NASI report is just the opening gun – things are much worse now," says Robert McGarrah, senior policy analyst at AFL-CIO. McGarrah says rising rates are causing employers to pressure state legislatures to offer relief. The relief can take two forms: increased regulation of insurance companies, or benefit cuts.
"Unfortunately, most states are following the second course," McGarrah contends. Florida, West Virginia, Texas and Washington State have already reduced workers' compensation benefits, and a big battle is brewing in California over the same issue. "That is unacceptable to us [the AFL-CIO]," he said.
McGarrah and the Fitch report argue the current problem of rapidly rising rates stems from insurers underpricing premiums in the mid-1990's when the stock market was booming. The full NASI report is available from the academy's Web site at www.nasi.org.