The Massachusetts workers compensation story has been an unqualified success by any measure.
A landmark 1991 workers compensation reform rescued a market that was on the brink of collapse, burdening employers with premium increases approaching 25 percent per year. The reform returned stability to the market, brought private insurers back to Massachusetts and reduced average workers compensation premiums by 65 percent during the next two decades.
It may seem surprising that the business organization that spearheaded the workers compensation reform is not dismissing the insurance industry’s request filed today for an average 19.3 percent increase in workers compensation rates. But the simple fact is that the same sort of rate imbalance that made it almost impossible for many employers to obtain workers compensation in the private market 20 years ago looms over the market again today.
AIM has become concerned in recent years by the increasing number of Massachusetts employers forced to purchase workers compensation insurance in the residual market, the market of last resort for companies that cannot find private coverage. More than 25 percent of employers now purchase workers compensation through the residual market because they are unable to find insurers willing to sell them policies.
Private-market coverage is harder to come by because the economics of workers compensation no longer add up for insurers.
Workers compensation premium rates have declined more than 25 percent since 2001. During the same period, the key elements of the claims paid to injured workers have increased. Average weekly wages have risen 27.5 percent and medical costs, which make up 40 percent of workers compensation claims, have skyrocketed.
The industry sought rate increases in 2008 (2.3 percent), 2010 (4.5 percent), and 2011 (6.6 percent), but regulators reduced rates or kept them unchanged in each of those years.
The growing disconnect between costs and premiums has already prompted several insurance companies to scale back their activity in Massachusetts. AIM remains concerned that additional retrenchments will destabilize the market for a product that employers are legally required to provide to their employees. It was just such a destabilizing spiral that produced the workers compensation crisis of 1991.
In the interests of full disclosure, AIM formed an employer-owned workers compensation company at the height of the 1991 crisis and still sponsors A.I.M. Mutual Insurance Company. We acknowledge that AIM’s involvement with A.I.M. Mutual presents a potential conflict on the issue of rates. It is important to note, however, that AIM has supported and in many cases driven the 11 separate workers compensation rate decreases that reflected favorable market conditions and left employers paying one-third of what they did for coverage 20 years ago.
Employers will still enjoy some of the lowest workers compensation rates in the country if the proposed increase gains approval from state regulators. Rates would remain approximately 58 percent below their 1991 levels. Rate increases have also recently been approved in many nearby states, including New Hampshire, Rhode Island, Vermont, Connecticut, New York and New Jersey.
The workers compensation rate filing deserves careful study and AIM looks forward to taking part in the discussion.