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With falling rates, market favors buyers

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Employers are seeing flat or lower workers compensation policy pricing as insurers work to hang onto profitable accounts during the 2016 renewal season.

Additionally, sources say insurers are offering incentives such as relaxed collateral terms and safety program assistance to keep existing customers and prevent them from shopping their accounts in a competitive comp market.

Sources at Marsh L.L.C., Aon Risk Solutions, Lockton Cos. L.L.C. and Willis North America Inc. say most employers are seeing 2016 workers comp rates that are flat to down as much as 5%.

“It's definitely a buyers' market right now,” said Christopher Flatt, managing director and leader of Marsh's Workers' Compensation Center of Excellence in New York. “There's lots of competition. I think what's driving it is just the fact that insurers want to hold onto their business.”

“The market for comp right now, I would say, is still fairly soft,” said Pamela Ferrandino, national casualty practice leader at Willis in New York. “We're not seeing the rate increases we've seen in prior years, and we're getting pretty close to flat.”

However, some companies are seeing rate increases of up to 5%. Price hikes generally have been limited to companies with recent increases in workers comp claim frequency or severity, experts say.

“The vast majority of the people that saw rate increases were people that had adverse loss experience year-on-year,” said Stephen Hackenburg, chief broking officer at Aon's national casualty practice in New York.

Mark Moitoso, senior vice president and analytics practice leader at Lockton in Boston, said a competitive workers comp market is prompting insurers to look for ways to keep policyholders that are considered safe risks. By reducing rates, he said insurers hope to prevent employers from seeing what other insurers have to offer.

“They know if an account does go into the marketplace that more than likely they're going to have to give up more price (cuts) to retain it,” Mr. Moitoso said.

In addition to reducing prices, Ms. Ferrandino said, insurers continue to soften their collateral requirements for well-qualified buyers. She said more workers comp insurers are allowing employers to post surety bonds in place of letters of credit to secure portions of their comp policy deductibles. Sureties are less costly than letters of credit.

While the collateral trend began last year, Ms. Ferrandino said more insurers now are willing to accept sureties as collateral.

“Probably 90% of the carriers are accepting surety for upwards of 50% of the collateral needs for many clients,” she said.

Freeport, Maine-based retailer L.L. Bean Inc., which is fully insured for workers comp by Maine Employers' Mutual Insurance Co., has received loss control and safety assistance from the insurer as an incentive to renew its policy, said Deborah R. Roy, director of health, safety and wellness at L.L. Bean.

The outdoor clothing retailer has about 10,000 employees during the holidays and about 5,000 employees during the rest of the year. Portland, Maine-based Maine Employers' has provided safety training and audits for L.L. Bean's employees as the retailer has worked to open more stores nationwide, Ms. Roy said.

Ms. Roy said she believes L.L. Bean's internal safety efforts, such as having a team of certified safety professionals on staff, have helped the comp insurer see L.L. Bean as an attractive risk.

“They really work with us to look at where they can add value,” said Ms. Roy, who plans to renew L.L. Bean's workers comp policy with Maine Employers' in March.

Workers comp capacity has been “plentiful,” said Mr. Flatt and other experts. But they note that companies with a significant concentration of employees in major cities such as New York or Los Angeles may have more difficulty finding coverage.

Employers concentrated in urban centers had difficulty securing workers comp coverage in 2014 and in early 2015 as the federal terrorism backstop expired at the end of 2014. The expiration worried comp insurers, since terrorism claims can't be excluded from workers comp coverage.

While President Barack Obama signed a bill a year ago extending the backstop through 2020, Aon's Mr. Hackenburg said some companies in urban areas have continued to experience tightening of the comp market. “They still struggle to find a lot of competition for their business,” he said.

Employers shopping for workers comp coverage can position themselves to take advantage of the competitive market by implementing safety programs and cost management practices that reduce comp claim exposures, Lockton's Mr. Moitoso said. “Having documented, executed loss prevention and claim management protocols and procedures are absolutely critical,” he said.