NEW YORK -- Workers compensation insurers need to implement more managed care practices and other innovations to remain successful, executives say.

Taking those steps is especially important in a market where low premiums and increasing medical costs might cause some players to fail, according to two workers comp experts.

Edmund Kelly, president and chief operating officer of Liberty Mutual Insurance Co. in Boston, said workers comp has become extremely profitable in the past five years. But the success is not because of anything workers comp underwriters have done, he said.

For a few years, medical inflation was lower than overall inflation. But more importantly, the rate of medical inflation was much lower than forecast in the early 1990s. As a result, premiums and reserves based on these projections were set higher, leading to large profits.

Mr. Kelly and the other panelists spoke at a New York conference, Managing Change in the Property-Casualty Industry, sponsored by Coopers & Lybrand L.L.P.

Mr. Kelly said that if the industry does not become more efficient, the profitable years might end.

Workers comp rates have dropped to the point where making a profit could be difficult.

"To compete in the workers comp field, cut price," is how Mr. Kelly described the market. He added that a number of insurers have dropped their rates very low; that, combined with the increase in medical costs projected for 1998 and beyond, could put them out of business.

The solution, he said, is applying to workers comp managed care principles, which he said have been proven to reduce medical costs. But he emphasized managed care cannot mean simply the cheapest care.

To succeed with managed care will require gathering and analyzing data, he said. "Data and information will be our greatest asset," he said.

"He who dies with the most data wins," he added.

ManagedComp Inc. has been successful in using managed care to reduce workers comp costs, said James Walter, president and chief executive officer. He said the clients of the Waltham, Mass.-based company have seen a reduction in their costs per claim and fewer lost work days by applying managed care concepts to workers comp.

ManagedComp believes the key to reduce costs is moving responsibility for managing patients' care to the doctor's office, Mr. Walter said. Because the majority of workers comp expense is lost time, the focus of any program should be returning the employee to work as soon as possible. This requires control by the treating physician, who determines when the patient can work again.

Mr. Walter said his company has reduced lost work time while also lowering the amount spent per claim for its clients. It has done this by putting employees in a network of high-quality, occupational physicians while providing these physicians with feedback on their performance.

Dwight Davis, president and chief operating officer of Wausau Insurance Cos. in Wausau, Wis., said a number of trends are working to change the workers comp environment:

Medical inflation is increasing and is predicted to increase for the next few years.

The workforce is aging, creating more costly workers comp claims.

The definition of disability is expanding to include more illnesses, such as stress and chronic fatigue syndrome.

The exclusive remedy doctrine has been eroding.

The number of workers comp insurers is increasing.

Mr. Davis said Wausau has succeeded by integrating occupational and non-occupational disabilities into a 24-hour coverage program. To achieve success, he said, insurers need to develop a team approach among employers, employees and providers, including maintaining open communication.

Also, coordinated data-gathering and analysis are important. The goal of the programs should be on returning the employee to work as quickly as possible.

As a result of the integrated programs, their customers have improved return-to-work results, increased productivity and lower administrative costs, he said.

Richard Fein, managing principal with Coopers & Lybrand, moderated the session.