[caption id="attachment_53123" align="alignright" width="342"] Mark Stokes, David Weinstien[/caption]
NORTH BAY -- Employers will likely face an increase in their workers compensation premiums in the coming year, as the cost of medical utilization and permanent disability continues to rise, according to brokers.
The Workers Compensation Insurance Rating Bureau, which makes recommendations on rates for carriers, has proposed a mid-year increase in pure premium rates of 4.1 percent, which would increase average premium costs from $2.41 per $100 of payroll to $2.51 per $100. The recommendation goes to Insurance Commissioner Dave Jones' office, who may or may not approve the increase; however, carriers are free to set their own rates, and brokers said they expected an increase to be passed onto employers.
"There's no question there's upward pressure," said Doug Dilley, a partner with Santa Rosa-based George Petersen Insurance Agency. "I fully expect we'll see carriers file for a mid-year increase."
Mark Stokes, regional managing director at Wells Fargo Insurance Services in the North Bay, agreed that carriers are likely to raise rates because of medical costs and an increase in permanent disability claims.
"What (the bureau) is saying is they need an increase of 4.1 percent. That's still sizable," he said. "If you look at what has transpired, the average renewal rate we've seen -- if an (experience modification factor) is static -- is an increase between 8 and 15 percent."
The request by the Rating Bureau, if approved, would kick in July 1. But even if Commissioner Jones doesn't sign off on it, the suggested increase could very well be a bellwether of how carriers are reacting to adverse conditions in the market.
"It doesn't prevent carriers from adjusting rates, it's the advisory rates," Mr. Stokes said. "What will happen in January 2013, you're likely going to see a pure premium rate increase in the high teens. The increase could range between between 10 and 20 percent, he said.
Mr. Dilley agreed with that notion.
"Almost all work comp carriers are experiencing adverse results," he said. "We've had various insurance executives say that we could see 20 plus percent over a two-year cycle."
David Weinstein, an assistant vice president at Vantreo Insurance Brokerage, agreed.
"Particularly on the comp side, we are almost invariably seeing increases on every renewal," he said. Mr. Weinstein said that for the past several years, carriers could not raise rates the recession took it's toll on employers. Now, carriers can't continue to underwrite their losses. "It's been our contention that the underwriting losses couldn't last forever, so we're starting to see them mitigate their losses," he said.
Compounding the issue, much of the reforms from 2004 are being whittled away, and litigation on permanent disability claims has increased steadily since then, brokers said.
"A lot of the reform dealt with the validity of disability claims, a lot dealt with the process and direction of medical care," Mr. Dilley said. "What's pulled it in the other direction is the increase in disability benefits."
The Ratings Bureau said some of the factors for its suggested increase include increased litigation related to permanent disability claims as well as an increase in cumulative injury claims, which differ from a single-incident claim.
Mr. Weinstein said some of that can be attributed to the weak economy, noting that as much as one in 10 claims was a cumulative injury claim.
"What I can say is that there is certainly an increase in cumulative trauma," he said. "When the economy tanked as a whole, you saw people making claims. Some were bogus, plenty were legitimate."
Even if claims haven't increased, they have become more costly because of increased medical costs
The cumulative trauma claims -- which can include emotional distress, anxiety and other mental health claims -- typically take much longer to resolve, Mr. Weinstein said.
Brokers said the trend upward for rates is, unfortunately, likely to continue as carriers reprice policies.
"Now we're caught in another upswing, and it's terrible news for employers," Mr. Dilley said.
One possible means of combating any rate hikes is for employers to incorporate wellness measures to address workers comp costs, not just employee benefits, both Mr. Stokes and Mr. Dilley said.
"Now we're seeing that wellness is applicable to the workers comp arena," Mr. Stokes said. "It's helpful in reducing health care costs, but it's also extremely helpful with workers comp costs."