Mass. AG Opposes 7.7% Workers’ Comp Rate Hike
At a recent public hearing, Massachusetts Attorney General Martha Coakley’s office expressed its opposition to the workers’ compensation average rate increase proposal and argued that the rate should be lowered instead.
The Attorney General’s office expressed its view at the Massachusetts Division of Insurance hearing on Jan. 30. The hearing provided interested parties an opportunity to provide testimony regarding a proposal by the Workers’ Compensation Rating and Inspection Bureau of Massachusetts (WCRIB) to raise the state’s average worker’s comp rate by 7.7 percent.
The hearings are expected to continue in March, with WCRIB presenting its case for a 7.7 percent rate increase. Afterwards, the State Rating Bureau and the Attorney General’s office will release their recommendations and make their cases.
If WCRIB’s proposal is approved, it would be the state’s first workers’ comp average rate increase in more than 10 years. WCRIB’s last filing in 2012, which requested an 18.8 percent average rate hike, was rejected by regulators.
“It is the Attorney General’s view that the insurers’ requested 7.7 percent workers’ compensation rate increase is excessive and should be disapproved,” said Monica Brookman, deputy chief of the Insurance and Financial Services Division at the Office of the Attorney General, who appeared at the Jan. 30 hearing on behalf of Attorney General Coakley.
“In fact, if any rate change is needed, it is a reduction, not an increase, in rates,” Brookman argued.
Workers’ comp insurance is a cost of doing business in Massachusetts, and it directly affects companies’ ability to stay in business, to create jobs, and to pay competitive wages. It also increases the prices consumers pay for goods and services in Massachusetts, she said.
Brookman estimated that if approved, a 7.7 percent average rate hike would increase the cost of doing business in Massachusetts by about $75 million.
Impact on Businesses
Further, the burden of higher costs would fall disproportionately on small businesses, she argued. “Because large businesses often receive preferential rate treatment, this increase will fall disproportionately on small businesses,” she told the regulators. “In the current economy, many small businesses are struggling, and unemployment is high. This is not the time to unfairly increase the cost of doing business in Massachusetts.”
Brookman also argued that the proposed increase is particularly inappropriate because it is based not on any projected increase in claims payments, but solely on the insurers’ desire to increase their level of profit in Massachusetts.
“Using the last profit provision approved by the commissioner instead of the inflated profit provision in the insurers’ filing, the indicated rate increase drops from 7.7 percent to a substantial rate reduction,” she said.
“A similar attempt by the insurers to grab more profit at the expense of other businesses in Massachusetts was rejected by the commissioner in a 2012 decision that provided explicit guidance on a reasonable profit,” Brookman said at the hearing. “Following the 2012 decision on profit and making no other changes in the filing, the insurers’ proposed rate increase turns into a substantial rate reduction.”
She said the profit earned by workers’ comp insurers in Massachusetts during last 10 years has been higher than those earned by workers’ comp insurers countrywide.
MAIA: Market Is Unhealthy
Also speaking at the hearing was Frank Mancini, president and chief executive officer of the Massachusetts Association of Insurance Agents (MAIA), a statewide trade association representing 1,400 member agencies and their 10,000 employees. In his testimony, Mancini warned regulators that the Massachusetts workers’ comp market is deteriorating.
Independent insurance agents write and service over two-thirds of the workers’ comp direct written premium in Massachusetts, MAIA’s Mancini noted. Because of the large market share of workers’ comp business handled by independent insurance agents, MAIA members have a firsthand knowledge of the state of the workers’ comp market in Massachusetts, he said, “and our members tell us that the market is unhealthy and is deteriorating.”
MAIA members deem the market as unhealthy because they are seeing fewer and fewer choices available to their clients, Mancini noted. “Our members tell us that many companies are tightening their underwriting, non-renewing more business than usual, and reducing or eliminating deviations enjoyed by safety-conscious insureds,” he said.
“Deviations provide incentives to insureds to do all they can to reduce losses and, in turn, their workers’ compensation premiums,” Mancini said. “With disappearing deviations goes the incentive for the client to put forth the effort to reduce losses.”
Another sign of an unhealthy marketplace is the increased number of risks being placed in the workers’ comp assigned risk pool, he commented. Recent data released by WCRIB indicates that one out of every four employers in Massachusetts is in the pool.
“Our members have advised us that business is forced to the pool at levels they haven’t observed in a decade,” Mancini said at the hearing. “And these are not just risks that find themselves in the pool because of the nature of their business, but rather risks that would normally find a home in the voluntary market.”
Mancini said the numbers bear out what MAIA members are observing.
Recent WCRIB data indicates that as of Oct. 2013, 16.9 percent of the workers’ comp written premium in the state was in the assigned risk pool. This amount represents a 65 percent increase in written premium in the pool over a 30-month period beginning in April 2011, when the written premium in the pool was at 10.2 percent.
Independent insurance agents are concerned that without rate relief the market 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, Mancini said.