Massachusetts still basks in the glory of its 1990 workers comp reforms, which transformed the state from the 3rd highest cost in the country to the 44th. For many of us who shared in this success, the recent comp rates have seemed too low. Since 2008 the Workers Comp Rating and Inspection Bureau (WCRIBMA) has asked for increases ranging from a modest 2.3% in 2008 to a dramatic 19.3% in 2012. The requests were routinely rejected by the Division of Insurance, which allowed no increases whatsoever until 2016, when they approved a 1.5% increase.
For insurance underwriters struggling to deal with what appears to be rate suppression, sleepless nights are in the forecast: The WCRIBMA has requested a whopping 11.1% decrease for industrial classes and a slightly larger decrease in other classes. Massachusetts rates, already the lowest among all industrial states, are poised to go substantially lower.
Which brings us to the underwriter’s dilemma: a good risk with inadequate premium can easily become a bad risk. For example, a MA dry wall company with zero losses over the three year rating period might generate an experience modification factor of 0.80 – a 20% discount on rates that are extremely low to begin with. Then add the carrier’s 10 to 20% discount. Finally, look at the insured’s crew: they’ve been hanging dry wall for 30 years without an accident – but an aging crew is at great risk for rotator cuff injuries (which can run as much as $100K). The good prospect suddenly looks a bit alarming.
Lower Rates, Higher Mods
One of the direct consequences of lowering comp rates is a reduction in expected losses. For insureds with losses during the three year rating period, the mod goes up as the rates go down.There may well be sticker shock as insureds with no new losses see significantly higher experience mods.
A heads up for agents: Once we have the final class rates from the rating bureau, agents should review any insureds with debit mods for the potential impact of the rate reduction on their mods. Needless to add, I am available to help with the calculations and with the necessary step of communicating the pending changes to your insureds.
Senior Workers Compensation Consultant