Workers compensation rates generally flat to slightly lower

Renewal rates for primary workers compensation coverage range from nearly flat to a 10% decrease with most buyers seeing reductions in the 5% range, observers say.

The U.S. market's underlying fundamentals, which include strong earnings and declining claim frequency, are contributing to a stable marketplace, insurers add.

"It continues to be viewed fairly attractively as a line (with) the industry results very solid, said Paul Ramont, senior vp and workers compensation product manager for St. Paul Travelers Cos. Inc. in Hartford, Conn.

"The market is in really good shape right now," agreed Richard Thomas, senior vp and chief underwriting officer for American International Group Inc. in New York. "Generally, the outlook on workers comp is pretty good."

Nationwide, pricing for excess workers comp is declining a modest 3% to 5%, which is similar to the 3% average decrease for filed rates for primary workers comp insurance nationwide, Mr. Thomas said.

Yet exceptions occur depending on circumstances.

For its Nov. 1, 2006, renewal, Fleetwood Enterprises Inc. saw a 55% decrease in its excess coverage for risks in Indiana, Georgia, North Carolina, Oregon, Pennsylvania and Washington, said Bill McMahon, risk manager for the Riverside, Calif.-based recreational vehicle and manufactured home producer.

Mr. McMahon said he typically develops long-term relations with insurers. But to obtain the steep discount, Mr. McMahon said he left his workers comp insurer of several years and purchased coverage from Chesterfield, Mo.-based Midwest Employers Casualty Co., which exclusively provides workers comp excess insurance.

Mr. McMahon said he doesn't believe his new insurer low-balled its pricing. Instead, it took a close look at Fleetwood's risk and saw that it had never pierced its retention.

"Sometimes it takes a fresh look because excess comp is not that complicated," Mr. McMahon said. Fleetwood also increased its retention from $500,000 to $600,000.

Across the industry, several sources said terms and conditions have generally remained the same.

But in a sign of competitiveness, underwriters are easing the amount of required collateral for some large-deductible accounts—especially those that are favorable credit risks, said Carol Murphy, managing director for Aon Risk Services in Chicago.

"It's become another item in the mix that is negotiated along with the pricing and the coverage," Ms. Murphy said. "The large-account market for workers comp is more competitive." On average, she said she is seeing rates ranging from flat to 10% lower.

Rates remained unchanged for the Jan. 1 renewal of First Niagara Financial Group Inc.'s guaranteed cost program, said Robert J. Brewer Jr., who is vp of First Niagara Risk Management Inc., the company's brokerage unit that places coverage for First Niagara Financial.

Mr. Brewer renewed coverage with Hartford Financial Services Group Inc. for about 2,200 employees spread primarily across upstate New York. Policy terms and conditions did not change, he said.

While the overall market is soft, conditions in New York state remain difficult, Mr. Brewer added.

Indeed, the Albany, N.Y.-based Public Policy Institute of New York State Inc. noted in a recent study that the average cost per workers comp claim in state was nearly double most states' average. One reason, according to employer groups, is that the state does not cap permanent partial disability awards by placing a time limit on them.

A slightly improved workers comp experience aided Niagara's renewal, Mr. Brewer said. The renewal also continued to include a "fairly attractive" deviation from filed rates that Niagara negotiated last year with Hartford.

On average, prices overall are running from flat to "low, single-digit" decreases, said Kathleen Langner, senior vp and workers comp practice leader for Chubb Group of Insurance Cos. in Whitehouse Station, N.J. Even so, a simple trend remains elusive because insurers have targeted appetites and approaches to pricing. Accounts with hazardous occupations are seeing less elasticity in pricing, she said.

Ms. Langner also said she has seen a slight increase recently in the use of "participating plans" that pay dividends to policyholders with favorable loss histories. "We are doing it selectively based on specific underwriting criteria," she said. "It's a means to compete, but to also encourage employers to continue their vigilance in loss control and claims management."

Rates in California, meanwhile, continue to deviate from the national average.

"Clearly, California is a little more aggressive than other marketplaces, but overall our rates have been pretty flat," said Don Kraus, western division chief underwriting officer for Liberty Mutual Insurance Co. in Chicago.

In December, the California Workers' Compensation Institute said the average insurer rate per $100 of payroll for the third quarter of 2006 fell to $3.21. That is down 29% from the second half of 2005 and less than half of the $6.47 for the second half of 2003, the year when California began implementing workers comp reforms.