Some Connecticut employers are facing another significant rate increase for workers compensation insurance next year, potentially as high as 30 percent — if state regulators approve a request recently pitched by an insurance industry trade group.
The proposed rate hikes, which were set by the National Council on Compensation Insurance, include an average 7.1 percent increase for policies sold in the normal or voluntary market.
Meanwhile, proposed rates for employers in the assigned risk pool, which is designed for new companies or those in hazardous industries, would increase an average of 0.4 percent.
Workers’ compensation covers medical care and rehabilitation costs for workers injured on the job. It also compensates workers for lost wages due to injury.
The hikes, officials say, are being driven by rising claim and medical costs to treat injured workers, in part attributable to Connecticut’s aging workforce.
The Connecticut Insurance Department is reviewing the rate requests and will make a decision on the rates after a 30-day comment period expires.
The proposed rate changes, which, if approved, go into effect Jan. 1, would vary by industry because there are hundreds of rate classifications for different kinds of businesses. As result, some Connecticut employers will actually see their rates decline, potentially as much 19 percent, while others may see rates increase as high as 30 percent.
Businesses in the manufacturing industry, for example, face an average rate increase of 6.8 percent, but the range includes increases as high as 27 percent and rate decreases of 13 percent, according to the rate filing submitted by NCCI.
The contracting industry faces an average 9.9 percent increase in premiums costs, with rate increases topping out at 30 percent, and rate decreases going as low as a 10 percent rate.
Meanwhile, the goods and services industry faces an average 7.6 percent rate increase, with the maximum rate hike of 28 percent and a rate decrease as low as 12 percent.
The increased expenses will hit employers at a time when businesses in Connecticut are already grappling with the second highest workers compensation costs in the nation.
A recent report by the Oregon Department of Consumer & Business Services found that Connecticut employers in the volunteer market pay on average $2.99 per $100 of payroll for workers compensation insurance, or 159 percent of the national median.
Only Alaska has a higher average rate of $3.01 per $100 of payroll, the Oregon study said.
“It’s tough for businesses in a state where they are already paying high workers compensation premiums,” said Laura Cummings, a lobbyist for the Connecticut Business & Industry Association. “As with any increase in costs, it means that those dollars will come out of another bucket.”
The NCCI, which is based in Florida and owned by its member insurers, prepares workers compensation insurance rate recommendations for more than 40 states, but the state Insurance Department is the final arbiter and must approve or reject the rates.
NCCI’s proposed average rate increase of 7.1 percent for the regular, voluntary market are “pure premium” rates that don’t include costs associated with administration, premium taxes and other expenses from insurers, which could drive up costs even further.
It also takes into account claims experience from a two-year look back period. This year’s rates are based on claims experience in the state from 2009 and 2010.
NCCI’s proposed 0.4 percent average rate increase for the assigned risk pool represents the full rate charged by insurers.
Final premiums charged to employers are a combination of the loss costs, carrier multipliers and discretionary pricing mechanisms designed to reflect employers’ safety records.
It’s all those different factors that are taken into account that make rate changes differ significantly from one business to the next.
The Hartford, Liberty Mutual, Travelers, AIG and Zurich are the largest providers of workers comp insurance in Connecticut, collectively owning 58.5 percent of the market.
Unlike health insurance rates, which have been on a prolonged and steady increase, workers compensation rates in Connecticut have been relatively stable over the past decade. Rates in the regular market, for example, fell, on average, nearly 1 percent from 2002 to 2010, and 38 percent since 1993. Rates in the assigned risk pool increased about 1.5 percent during that time period.
But over the past three years rates have slowly been on the rise. Last year, for example, the average rate increase in the voluntary market was 4.5 percent, which was preceded by a 5.8 percent rate increase in 2011.
This year’s uptick represents the highest rate increase in the voluntary market in more than a decade.
Laura Backus Hall, the state relations executive with the NCCI, said the proposed rate hikes in Connecticut are being driven by several factors including a continued deterioration in claims experience.
Experience and trend are key factors in calculating workers compensation premiums, and in Connecticut two large workplace incidents in recent years contributed to higher costs for the entire state, Hall said.
That includes the Kleen Energy power plant explosion in 2010, which left six people dead and dozens more injured and the 2010 Hartford Distributors shooting, in which an employee opened fire in the workplace killing eight coworkers.
“Since we look at past experience, those events continue to impact Connecticut claims,” Hall said.
Additionally, the average medical cost per workers compensation claim also continues to rise, putting upward pressure on premiums, Hall said.
Cummings, of the CBIA, said there are other issues causing Connecticut employers to pay some of the highest workers compensation rates in the country.
One is an aging workforce.
With one of the older workforces in America, it can take longer for older workers in Connecticut to recover from an injury, which means their wage replacement costs are higher because they tend to be paid more, Cummings said.
