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Dec 10, 2010 - A Brief Look Into Your Next Workers’ Compensation Rate Adjustment

Get Ready.  The Wall Street Journal article “Liberty Mutual CEO: Workers' Compensation A 'Time Bomb' For Insurers” indicated that in essence Liberty would be leaving the California marketplace.  Their CEO stated workers’ compensation coverage is largely unprofitable, and considers the market a “time bomb” that will become even more costly for insurers who remain.

If an insurance company is running less than a 100% combined operating ratio they are making a profit, more than 100% they are experiencing a loss.  Last year the average combined operating ratio was 125%, meaning for every $100 of premium the insurance companies received they paid $125 in claims and expenses.   Without an underwriting profit you will start to see insurance companies making one of two moves, either raise their rates or get out of the California market all together.

2005 was the peak of written premium in the state of California; it was also the time when we saw a flood of new insurance companies breaking into the state.  $23 Billion was the amount of workers’ compensation premium in California.  In 2009 that had reduced to $5 Billion.  That is a 77% premium reduction and stimulus to the California economy.

Claims have not dropped proportionately and are on the rise.  The current trend of the total indemnity claims cost will tell you more.  The average indemnity claim in 2005 was $38,484; in 2009 it had increased to $58,910, a 53% increase.

Business owners want to know what the rate change will be for their 2011 renewal.  The rates have yet to increase enough to improve the money losing trend the insurance industry finds itself in.  The longer the rates remain inadequate for political or competitive reasons the harder and faster they will soon go up.  Just not quite yet.

A simple truth.  Insurance carriers are not bound by rate restrictions imposed by the Insurance Commissioner or the Workers Compensation Insurance Rating Bureau.  Carriers adjust their own net prices by applying debits or credits based on the quality of business.  Carriers charge what they need to charge or they find a reason not to write the business.

What can you do?

Protecting your business from a serious increase can be achieved through a number of tactics.n Your workman’s comp rate is determined by your business and claims experience.  In order to receive the best pricing from the best insurance companies you need to be able to show that you are the best business in your class and the one they want as their customer.

One of the points the Wall Street Journal article made was that Liberty isn’t completely leaving the market; they were instead going to reduce their exposure. This implies they will write policies only for the businesses they desire to insure.  You can not be one of these businesses by accident; you have to purposely place yourself ahead of your colleagues.

In positioning your company for getting the best rates it’s important to know how you’re doing.  Your experience modification will tell you that.  If your experience mod is less than 1.00 you are doing well, if it is less than .75 you are doing very well, and if you are over 1.00 there is room for improvement.  Once you understand your mod, it’s time to work on improving it.  Here are some of the suggestions we make to our clients.

  • Hire Right - The old Jim Collins cliché says “start by getting the right people on the bus, the wrong people off the bus, and the right people in the right seats”.  After you have the right people you need the policies and procedures to intentionally take your business to the next level.  Once your business is intentional about its results you can start to consider financial alternatives only available to the best companies.

    Hiring the right employees starts with empowering your supervisors and human resources department.  You can provide your key HR employees with the right tools such as Don Phin’s, HR That Works and Zywave from Capax and pre-employment screening tools such as personality assessment to match the employee to the position.

  • Loss Prevention Programs - Your loss prevention program is vital to your success.  A program that educates, trains, enforces, and rewards your employees will produce fewer claims and lower rates.  Encouraging safety through team building and competition can bring extraordinary results while strengthening your employee morale. 

  • Wellness - Another hot topic among successful employers today is Wellness; it can produce improved awareness, presenteeism, productivity, and fewer employee injuries.  While larger employers have paved the way on employee wellness programs getting started on a wellness program can be easy if you have the right resources and guidance to get you off the ground.  Capax is successfully spearheading “My Wellspace” programs in our community.

  • Captive Insurance - Financial alternatives such as your own captive insurance company lower your net costs. This can be done once you have achieved a culture of excellent claims experience.  When your company achieves better business results you receive maximum discounts on your rate and create financial opportunities not available to your competition.

With no rate increase approvals by Insurance Commissioner Poizner the insurance company balance sheets will continue to bleed reaching a point at which we will encounter shocking rate increases. 

Don’t be a victim.  Prepare your business now by implementing the best business practices available at Capax or your valued business insurance provider.   

Joel Geddes