The Division of Insurance held a public hearing on the proposed rate increases on March 30, 2012
Many in the Massachusetts insurance industry made an appearance at the Division of Insurance last Friday to voice their support and/or opposition to the Worker’s Compensation Rating and Inspection Board’s (WCRIB) proposal to increase worker’s compensation insurance rates by 19.3%. Under Massachusetts law, the Division must hold a public hearing prior to determining whether or not to approve a rate increase.
Among those who gave testimony included Frank Mancini of the Massachusetts Association of Insurance Agents, Geoff Gordon of the A. Gordon Insurance Agency, Scott P. Lewis the WCRIB’s legal counsel, Kevin Beagan of the State Rating Board, Linda Sallop President and CEO of the Charter Group of Companies, Don Baldini of Liberty Mutual and representatives from the Attorney General’s Office, Massachusetts Chamber of Business & Industry, Boston Chamber of Commerce, AIM.
A majority of independent agents see the current worker’s compensation insurance marketplace as “unhealthy”
Frank Mancini, President and CEO of the the MAIA says that his association which represents some 1,400 independent insurance agencies in the Commonwealth also are backing an increase in rates because what they see now is an unhealthy marketplace.
“Because of the large market share of worker’s compensation business handled by independent insurance agents, our members have a firsthand knowledge of the state of the workers’ compensation market in Massachusetts. And in one word they tell us this market is ‘unhealthy.'”
Mancini went on to explain the one MAIA’s member client, who is a large manufacturer that is very safety conscious, provides a safe workplace by participating in both the insurance company’s loss prevention program and in its own aggressive back to work program for injured employees. Mancini explained that as a result of this clients hard work the insurance company had rewarded this company with a 20% deviation. With the current market as it is, however, the agent fears that the insurer now will no longer offer the deviation upon renewal resulting in a potential premium increase for the company of 20%.
With the deviation, goes the incentive for the client to put forth the effort to reduce losses. This is just one example, but it is representative of what we are seeing in the market.”
Another worrying trend, says Mancini, is rise of risks being placed into the worker’s compensation assigned risk pool. “Our members tell us they have seen more business placed in the pool over the last few months than in any other time they can remember.” In fact, he stated that the WCRIB recently announced that now more than 25% of all Massachusetts employers are in the assigned risk pool.
In concluding his remarks, Mancini stressed that the Division of Insurance keep in mind the realities regarding the current state of worker’s compensation in Massachusetts.
“MAIA is not in a position to actuarially (sic) comment on the rate filing made by the WCRIB. However, we are in the best position to advise you that the independent insurance agents who deal in the worker’s compensation market every day with insurers and employers, are concerned that without rate relief the worker’s compensation marketplace will continue to shrink, resulting in fewer choices in companies, reduced dividends and deviations, more business in the pool and all the drawbacks that go with that assignment.”
Independent Agent Geoff Gordon, of the A. Gordon Insurance Agency, gave testimony during the public hearing
Independent agent Geoff Gordon, of the A. Gordon Insurance Agency in Norwell concurred with the MAIA’s characterization of the current marketplace for worker’s compensation. In his public testimony, Gordon stressed the following:
Many small business owners consider workers compensation a tax, and I’m not proposing that a massive increase would be healthy for a broad swath of industries in Massachusetts. Nobody wants their taxes raised, least of all, small businesses already struggling with high costs and a still lukewarm economic conditions.
However, the existing system is unhealthy. Market health can be accurately gauged by the number of accounts that end up in the assigned risk pool. Today too much business is heading toward the pool, approximately 1 in 4 accounts.
The problem with a pool mechanism for a growing share of the market is that carriers assigned to handle this business don’t have incentives to allocate resources to great claims management and other forms of loss control. A dollar of expense on claims management and other loss control will return only the market share percentage of gains back to the carrier. Thus, too much business in the pool ultimately increases underlying costs; and we can all agree that underlying costs drive future prices.
The assumption that profitable rates necessarily gouge consumers is flawed. If profits are excessive, other carriers offer services for less. When prices are regulated below market, as they appear to be today, the price discovery process of the market is undermined. Additionally, services such as payment options and underwriting flexibility for consumers evaporate.
A Main Street example of an account I’m working on is illustrative. This is a nice account I’ll work hard to write. Their dissatisfaction with workers compensation arises out of a highly variable payroll; last year’s audit was substantial, and put excessive pressure on the business’s cash flow. Our solution is to have a payroll service provider collect the workers compensation premium in line with payroll, to allow all labor costs, including workers compensation, to be collected in the periods when revenues support it. Unfortunately, we’re having trouble finding an insurance carrier which offers a payroll services payments program willing to write this risk. Thus, we have a good solution for this business’s problem, but this market is working against the solution. This is not the sign of a healthy market.
In summary, I believe a modest increase would bring choice and competition back to the market, and provide incentives to carriers to continue to invest in loss control and claims management that is healthy in the long term.
The WCRIB says that if its prior rate increase proposals had been approved things would have been different
Scott Lewis, of the law firm Anderson & Krieger, spoke on behalf of the WCRIB. In support of the bureau’s proposal, Lewis state that in considering the Bureau’s proposal which he admitted would be a large increase, the Division must remember the following:
First, since 2011, there has not been any increase in worker’s compensation insurance rates in Massachusetts. The rates in effect today are nearly 65% lower than the rates that were in effect in 1991, more than 20 years ago. In an effort to maintain adequate rates, the Bureau sought small increases in rates in 2008 (2.3%), 2010 (4.5%) and last year in 2011 (6.6%)…If these modest increases had been approved over the past several years, we would not be seeking a double-digit increase in rates today.”
In addition, Lewis said, the actual experience of insurers writing worker’s compensation coverage in the Commonwealth has continued to deteriorate. Since this forms the foundation of the Bureau’s filing, it should come as no surprised that as the costs of doing business have gone up while interest rates remain rock bottom thus providing little opportunity for insurers to offset underwriting losses with investment income. The rise in rates are simply a reflection of the state of affairs in today’s economy. As such, concluded Lewis, “The time has come for a rate increase in Massachusetts.”
Not all parties present were in support of the 19.3% increase however
The most vocal opponent of the proposed rate increases came from the Attorney General’s Office. Monica Brookman, the Deputy Chief of the Insurance and Financial Services Division of the Office of the Attorney General states that it is the Attorney General’s view that the proposed 19.3% is “plainly excessive” and that based upon the AG’s preliminary review of the data there exists no plausible way in which the WCRIB can justify these rates.
Worker’s compensation insurance is a direct cost of doing business in Massachusetts and therefore, affects not only our companies’ ability to create jobs and pay competitive wages, but also the prices consumers pay for goods and services produced or sold in this state. With unemployment high and the economy still at early stages of recovery, this is not the time to unfairly and substantially increase the cost of doing business in Massachusetts.
In public statements, the insurers claim they need to raise rates because workers compensation losses are higher. But the loss ratio trend contained in the insurer’s filing, while positive, is minuscule, 0.2% annually. Even if the WCRIB’s rejected loss ratio trend of 0.2% is accepted, this trend does not begin to support a 19.3% rate increase.
It is clear through their filing that the insurers want to extract more profit from their Massachusetts operations. Using the last profit provision in rates approved by the Commissioner of Insurance, instead of the vastly inflated profit provision in the insurers’ current filing, the insurers’ indicated rate increase drops from 19.3% to about 2%…In fact, the profits earned by worker’s compensation insurance companies in Massachusetts during this time period have been higher than those earned by workers’ compensation insurers countrywide.
While not rejecting outright the proposed rate increase, the Massachusetts Chamber of Business and Industry suggested that a more modest rate increase should be implemented. The Massachusetts State Chamber of Commerce which represents hundreds of business interests and many local Chambers of Commerce throughout the Commonwealth requested that the Division reduce the rate increase to a more reasonable amount.
“In this difficult economic climate, Massachusetts should be focused on ways to save the Commonwealth’s large and small businesses money. The state has already experienced the loss of two major companies and countless smaller businesses. With the proposed 19.3% increase, more businesses may be forced to relocate.”
Liberty Mutual also weighed in at the hearing
Liberty Mutual, which originally began as the Massachusetts Employer’s Insurance Association 100 years ago, was formed with the sole purpose of writing the newly-emerging line of worker’s compensation insurance for Massachusetts employers. Don Baldini, Liberty Mutual’s Assistant Vice President and Senior Legislative Counsel explained that even though now Liberty Mutual is now the third largest property and casualty insurer in the U.S., worker’s compensation still remains an important part of the company’s make-up.
We have not forgotten our roots as a Massachusetts-domiciled writer of worker’s compensation insurance for the employers of this state. We have always understood the impact that worker’s compensation costs have on the competitiveness of our insureds, and on the economic competitiveness of the state.
Today more than ever we appreciate this connection – our long-term customer, Turner Construction Company, is currently building our new 22-story home office expansion at the corner of Columbus and Berkley Street in Boston. An increase in Turner’s worker’s compensation costs puts pressure on them as they attempt to complete this project on time and under budget, which in turn impacts our costs and competitiveness. the lower our costs for this project, the more we can grow our business and hire more employees to fill our new building.”
So it is not lightly that we come before you to ask for an increase in worker’s compensation rates. But we are compelled to do so for some of the reasons outlined in the testimony of Attorney Scott Lewis for the WCRIB.
Baldini went on to outline the three reasons why Liberty Mutual felt that an increase in rates is appropriate. First, the company says that with this rate filing, Massachusetts is not about to return to the days when the worker’s compensation insurance created a competitive disadvantage for employers in the Commonwealth. Second, Massachusetts employers need a healthy and competitive insurance marketplace.
“Insurers need reasonable rates if they are to continue to write this coverage voluntarily. Employers are not well served by a large involuntary market pool.”
Third, Baldini reasoned that employers need some level of predictability. “Rejecting a legitimate and justified rate request this year will only increase the pressure for greater increases in the future.In conclusion, Baldini said that perhaps the best way to achieve more balance in the worker’s compensation would be to rework the competitive rating model.
“…[A] better way to ‘balance out’ rates that may be ‘too high’ or ‘too low’ is through a more explicit competitive rating model such as ‘loss cost’ rating (akin to ‘Managed Competition’ for car insurance.) Setting base rates on loss costs only, and then allowing companies to file Loss Cost Multipliers (LCMs) to reflect their own expense and profit needs (as is done in 34) states, creates a more competitive, flexible, and ultimately less volatile market that will ‘balance out’ more efficiently than the current administered pricing system, without the need for large overall average rate requests like the one we are contemplating today.”