Each year, the MA Workers’ Compensation Advisory Council issues an annual report
On April 29, 2015, the Massachusetts Workers’ Compensation Advisory Council (“WCAC”), issued its annual report on the workers’ compensation system in Massachusetts for fiscal year 2014.
The Council is a statutory body established by the Legislature to monitor, recommend, give testimony, and report on all aspects of the Massachusetts workers’ compensation system. Also, by law, the WCAC must issue an annual report evaluating the operations of the Department of Industrial Accidents and the condition of the Massachusetts workers compensation system.
The WCAC’s full 162 page report, which Agency Checklists has attached below, provides a complete summary for the interested reader of the operations of the Department of Industrial Accidents (DIA), summarizes legislative initiatives and current statistics related to occupational illness and injury.
Perhaps, of most interest to the readers of Agency Checklists, would be the 14 pages of the WCAC report that describe the insurance component of the Massachusetts workers’ compensation system.
The following contain summaries of selected sections and graphic information from the report on Massachusetts relating to workers’ compensation in fiscal year 2014. Agency Checklists also has linked the 14 pages relevant to insurance issues below for easy access by its readers.
Mandatory coverage by commercial insurance, qualified self-insurance, or qualified self-insurance group
Almost all private employers in Massachusetts are required to maintain workers’ compensation insurance for the benefit of their employees. Employees can satisfy this legal requirement by purchasing a commercial insurance policy, becoming a member in a self-insurance group, or maintaining a license as a self-insured employer.
Commercial insurance market
The overwhelming majority of Massachusetts businesses satisfy their legal obligation under the Worker’s Compensation act by purchasing commercial insurance. As a result, commercial insurance carriers provide the bulk of all benefits paid to injured employees and their medical providers.
The WCAC report states that in fiscal year 2014 there was a net gain in four insurance carriers licensed to write workers compensation insurance in Massachusetts. The Division of Insurance approved a total of four new licenses for carriers to write workers’ compensation insurance in Massachusetts. Also, one carrier had its license amended to add the authority to write workers’ compensation insurance, while another carrier had its license amended to delete its authority to write workers compensation insurance existing license was amended to delete workers’ and the process at the Division of Industrial Accidents.
The WCAC report does not list the largest writers of workers’ compensation insurance. For the top 20 workers compensation writers in Massachusetts for 2014, see Agency Checklists’ January 19, 2015 article “The Top 20 Workers’ Compensation Insurers In Massachusetts”.
Massachusetts workers’ compensation insurance rates remain constant for 2014
In Massachusetts, workers’ compensation insurance rates must be approved by the Commissioner of insurance. In March 2014, former Commissioner Murphy denied the Workers’ Compensation Rating & Inspection Bureau of Massachusetts’ rate filing that would have increased workers’ compensation insurance rates by an average of 7.7%. As the result of the denial of the $77 million projected increase in workers’ compensation premiums, the Massachusetts rates continued to be among the lowest in the nation for workers’ compensation insurance. See October 29, 2014 Agency Checklists’ article: “Mass. Worker’s Compensation Rates Continue To Be Among The Lowest In the Country”.
No increase in self-insurance licenses but an additional 122 commercial entities covered under the license
In fiscal year 2014, the number of licenses issued to self-insurers remained constant at 90. However, in maintaining the same number of self-insurance licenses the Department of Industrial Accidents issued two new licenses and apparently two existing licenses lapsed or were surrendered. The number of business entities or units covered by the outstanding self-insurance licenses in fiscal year 2014 went from 391 to 513.
The Department of Industrial Accidents generally only approves a self-insurance license for employers who have at least 300 employees and $750,000 in standard premium annually. Also self-insured employers must file a bond that usually has a penal sum in excess of $1 million. Self-insurance is generally
Self-Insurance Groups continues slow membership growth with 2.7% increase for 2014
Before 1985, as a practical matter most business in Massachusetts only had the option of commercial insurance to satisfy their legal obligations to provide their employees workers’ compensation insurance. The law allowed companies to self-insure but the requirements were so onerous that only the largest and most financially secure companies could qualify. In 1985, the Legislatureallowed for companies to form self-insured groups or SIGs. SIGs provided smaller companies provided the SIG involved:
- Five or more employers;
- Engaged in the same or similar type of business;
- Members of the same bona fide industry, trade or professional association; and
- The association has been in existence for not less than two years.
- In the alternative to association membership, employers that are parties to the same or related collective bargaining agreements qualify for SIG membership.
A SIG may also be formed for qualifying public employers and non-profit groups as well as private employers.
While the Division of Insurance licensed its first SIG in 1987, the legislative reforms of workers’ compensation in 1991 spurred the formation of over 25 SIGs between 1991 in 1993. The attached chart shows the growth of SIGs in Massachusetts since 1991.
SIG premiums are calculated in the same manner as commercial insurance, with manual rates adjusted by an experience modification factor and the All Risk Adjustment Program.
The advantages that SIGs claim for their members are:
- The ability for members to manage their own claims;
- Reduced administrative costs compared to a commercially insured plan.
- Reduced or eliminated commissions, premium taxes, and other insurance based costs: and
- Dividends arising out of the SIGs operations returned to members and deviated rates
Two major risks to an employer becoming a member of a SIG relate to the other members of the SIG’s safety practices and financial strength. The SIG’s must by law spread the cost of indemnities and operational expenses amongst the group’s members. While shock losses, can be mitigated by a SIG’s excess workers’ compensation insurance or reinsurance, the cost of a member’s insolvency or bankruptcy cannot. The members of a SIG have joint and several liability for workers’ compensation losses and expenses owed by any insolvent or bankrupt member of the SIG. a bankruptcy filing by a member of a SIG that has above average claim frequency and severity could cost the other members of the SIG to pay substantially more than their fair share.
As of January 1, 2014, Massachusetts 5,802 employers were members of 21 separate SIGs. This was a 2.7% increase from January 1, 2013, when 5647 employers were members of 22 separate SIGs.
Assigned risk pool up 70% since 2011
One natural consequence of the relatively low premium rates for workers compensation insurance in Massachusetts can be seen in the recent upward trend in the residual assigned risk market since 2011. Since reaching a low of 10.4% in fiscal year 2011, the workers’ compensation
insurance residual market share has increased each year until in fiscal year 2014 it reached 17.6% of the market. That 17.6% market share is approximately 70% higher than the residual market share in 2011.
According to the WCAC report the residual market burden that measures the assigned risk pool’s relative costs that each carrier writing workers’ compensation insurance must bear was estimated for the first quarter of fiscal year 2014 as .42 with an assumed loss ratio of 65%. (See page 103 of the WCAC report).
Links to the insurance section and to the full report of the WCAC
The following link is to the 14 page insurance section of the WCAC report: Section -7- Insurance Coverage.
For the full annual report click here: The State of the Massachusetts Workers’ Compensation.