Workers' Comp: Cost Burden? Or Not?
Jennie Lee Colosi, of E.T.& L. Corp. of Stow, said she was surprised a rate hike didn’t pass this year. But if the economy is stronger in a year, she thinks there will be more of an appetite for a hike — and possibly a substantial one at that.
When the Massachusetts Division of Insurance denied the workers' compensation insurance industry an 18.8-percent rate increase in August, business owners across the state breathed a collective sigh of relief, knowing they had avoided larger payments for the time being.
But the last time there was a workers' compensation increase was 2001, when the division approved a more modest 1-percent jump. In each of the last 11 years, statewide rates have either decreased or stayed the same, even as health care costs and wages — which determine the cost of paying injured workers — have climbed.
The result, according to industry officials, is an unstable workers' compensation market in Massachusetts. They say fewer insurance companies want to write policies here, driving up the size of the high-risk pool for workers' compensation. And business owners say they know a rate increase will hit them eventually — and after so many years without one, it could be sizeable.
“Any time you have rate inadequacy in any line of insurance … what happens is, the pool grows,” said Jim Harrington, executive director of the Massachusetts Insurance Federation, a Boston-based trade association for property and casualty insurers.
Falling Into The Pool
Becoming part of the workers' compensation pool is like becoming part of the high-risk car insurance pool after you've had one too many traffic incidents.
The difference, according to Harrington and others in the industry, is that some businesses have to join the high-risk pool without having particularly poor accident records, simply because insurance companies are reluctant to write policies here.
State officials and the Workers' Compensation Rating and Inspection Bureau (WCRIB), the licensed agency in Massachusetts that files for rate increases, spar over the size of the high-risk pool.
The WCRIB reports about 25 percent of workers' compensation policies are being written from the pool today. But Massachusetts Commissioner of Insurance Joseph G. Murphy said the number is lower — about 14.5 percent as of June 2012.
Murphy said that number fluctuates, but it doesn't approach the 25 percent the WCRIB cites. He argued that the Massachusetts market is healthy, with about 100 companies writing workers' compensation policies here. But he also said the size of the pool is edging upward.
“It's a concern. We want as much business as possible being written through the voluntary market,” Murphy said.
Attorney General Martha Coakley's office actually recommended a decrease in the rates this year, and applauded the Division of Insurance's decision not to approve the 18.8-percent increase requested by the WCRIB, saying it would have been a hit to businesses struggling to stay afloat.
But Murphy said the division's decision doesn't mean an increase isn't warranted. He said there simply wasn't adequate justification for such a steep one. Murphy added that stagnant or decreasing rates are not sustainable.
“Obviously, every product has a cost,” Murphy said.
Diana Pisciotta, a spokeswoman for the WCRIB, said some consumers are hurt by the state's policy over the last several years to cut rates or keep them flat. That's because businesses have access to deals when they buy from the market that aren't available in the high-risk pool.
“You don't get a spectacular deal; you're likely paying full price,” Pisciotta said.
The rates set by the Division of Insurance are only averages, and how much companies end up paying year to year varies according to multiple factors.
Rate Variations
Jennie Lee Colosi, owner of E.T. & L. Corp., a Stow construction firm, said just because there hasn't been a rate increase in the state since 2001 doesn't mean her costs have not risen. Variations in rates according to the nature of a business can cost some businesses more than others, and construction is a particularly expensive business, Colosi said. Factors like payroll and accident history are also at play.
Workers' comp accounts for about 40 percent of E.T. & L.'s liability insurance costs — by far the largest piece. But it makes sense; Colosi said it's simply a dangerous industry. To keep costs as low as possible, safety procedures are a top priority, Colosi said.
Colosi also said there are employees who take advantage of workers' compensation policies by claiming they can't work due to injury when it's not warranted.
“Some good companies are getting caught in that,” Colosi said.
Mass. Costs Lower Than Most
Despite the possibility of higher workers' compensation costs in the future, the situation could be worse. Massachusetts has one of the lowest rates in the country, according to the 2012 Oregon Workers' Compensation Premium Rate Ranking Summary. The average rate here is $1.37 for every $100 of payroll — the eighth-lowest rate in the United States. The other New England states rank much higher, with rates of about $2 or more.
For businesses, this seems advantageous. But what about the insurance companies that write workers' compensation? Aside from anecdotes provided by industry officials like Harrington and Pisciotta, it's difficult to gauge whether local insurance companies will likely drop workers' compensation coverage from their services due to flat rates.
Several Central Massachusetts insurance firms did not return phone calls seeking comment on the issue, while Michael F. Buckley, spokesman for Worcester-based Hanover Insurance Group, deferred to Harrington of the Massachusetts Insurance Federation.
The WCRIB had 30 days to appeal the Division of Insurance's decision to the Massachusetts Supreme Judicial Court, but did not. Pisciotta said the staff is still reviewing the decision and will likely refile for an increase at a later date.
Local Business Weighs In
Local businesses are expecting it. Colosi, the E.T. & L. owner, said she was surprised a rate increase didn't pass this year. She figured the state didn't want to overburden businesses, but if the economy is stronger in a year, she thinks there will be more of an appetite for an increase. And, Colosi thinks it could be substantial, since it has been 11 years since the last increase.
“Hopefully, businesses will be doing better next summer,” Colosi said. “Then they'll say, OK, now's the time. Let's get 'em.”
At Nypro Inc., a plastics manufacturer with operations in Clinton, addressing safety issues is the most important way to keep workers' compensation costs as low as possible, said spokesman Al Cotton.
“Safety is the first issue we address at any meeting in the plant,” Cotton said, adding that the company's accident rate is in the single digits.
If an insurance rate increase is approved in the future, Cotton said the company is well-equipped to curb rising costs because it employs a dedicated safety staff. Smaller companies may not have that advantage, Cotton said.
Classification Critical For Smaller Businesses
What to do if you own a small business? According to Claude Chapdelaine, owner of Cado Co. in Fitchburg, the way in which one classifies a business is crucial.
Cado, which makes plastic molds (the company's claim to fame is the iconic pink flamingo lawn decoration), saved a lot of money when it switched its classification from a machine shop to a mold maker. Both classifications are technically accurate, Chapdelaine said. But the latter is preferable for obvious reasons.
“Quite frankly, it's a game,” Chapdelaine said.
That may be true in more ways than one.
In the company's 55-year history, there was only one time a workers' compensation claim was filed. That was when Chapdelaine suffered a heart attack on the job 25 years ago, and received payment while he was recovering. Due to that claim, the cost of workers' compensation doubled the following year.
Read more
Proposed Workers Comp Hike Rejected
Employers Keep Unions On The Ropes
Central Mass. Companies Keep Watch On Outcome Of Election
WBJ Web Partners
Most Recent
Most Recent
0 Comments