WORKERS' COMPENSATION RATES
Earlier this month, New York Governor Eliot Spitzer, along with various leaders of the Legislature, announced a 20.5% decrease in Workers' Compensation insurance costs. It is estimated that this will save New York businesses $1 billion in the 2007-08 fiscal year. This was accomplished as a result of Workers' Compensation reforms enacted earlier in the year.
Initial estimates of the savings last February were in the 10% to 15% range and the initial rate reduction sought by the New York Compensation Insurance Rating Board (which sets premium rates in New York) was for 16.3%.
The actual rates to be effective for policies with rating anniversaries on or after October 1, 2007 were just published and the overall cost level is down only 18.4%, which includes a 19.1% reduction in the average manual rate level. The Rating Board also took the somewhat unusual step of approving a 16.1% decrease for all other existing policies on that date. Together with a reduction in the assessment surcharge from 18.6% to 15.5%, this makes up the 20.5% decrease that was announced.
While many of the reforms were aimed at controlling costs, one increased the maximum weekly benefit from $400 to $600 over three years (a change that was admittedly long overdue). To pay for this increase and to fuel the savings, there will be a cap on the length of time an injured employee can collect permanent partial disability benefits, the Second Injury Fund will be eliminated, and fee schedules will be established for pharmaceuticals, durable medical equipment and diagnostic tests, among other things.
The initial impact of this reduction will be felt by insured employers who will see a reduction in their premiums on October 1, 2007. The Superintendent of Insurance predicts this will average 4% to 5% of payroll for most employers. Self-insured employers and those on loss-sensitive plans may have to wait a bit longer to realize their savings.
The other thing to watch out for is what happens to experience rating. With premium rates coming down, one would anticipate a reduction in the expected loss rates that go into the experience rating modification calculation. If actual losses do not decrease at the same rate, modification factors will climb.
The caveat here is not to spend all your savings at once. We have not heard from the insurance companies yet, but they have typically said that they couldn't make money with rates where they were. An 19.1% decrease in rates will not sit well with them. The issue here is whether this action will cause insurers to withdraw from the New York market.
The initially announced 10% to 15% reduction probably would have satisfied most employers in the state who have seen their Workers' Compensation costs steadily go up each year. We will have to wait and see if the current reduction is sustainable or merely another political ploy.
-- James B. Hood, Jr., CPCU
Vol. XX, No. 4
 |
 |
 |
 |
 |
 |
 |
 |
One of the big news items in New York this year was "Workers' Compensation Reform." When an agreement was reached between the Governor and the Legislature (amid much fanfare) last February, the potential savings were pegged at 10% to 15%. The other shoe has since dropped and the actual premium rates are going down an average of 19.1%. Adding in changes to other factors, the reduction averages 18.4%. If that weren't confusing enough, by including a reduction in assessments, the overall average cost decrease is 20.5%. (Caution: Your actual reduction may vary.) Our primary concern, as expressed in the accompanying article, is whether or not this substantial reduction will result in fewer insurance companies that are willing to write Workers' Compensation policies in New York. It's not that the coverage will become unavailable, but it could mean that more and more employers will have to resort to the State Insurance Fund. We have nothing against the Fund (really!) and they do fulfill a valuable function, but we would regret a reduction in the availability of other choices. In other news, we continue to see the effects of the soft insurance market in the form of lower rates and premiums, and we have been surprised by some substantial reductions in specialty coverages. If you are not experiencing the same phenomenon (taking into account increased exposure values and adverse claims histories), you should be asking your agent or broker about it. --- Ed.
|
