Insurance: Workers’ Comp Rates Ready to Take Off
The storm clouds already are gathering, according to an annual report compiled exclusively for ENR by New York City-based insurance broker Marsh USA Inc. This year’s national survey of workers’ comp rates shows that the average premium for structural ironworkers per $100 of payroll increased 8.6% over the past year to $41.24. This follows a 4% increase in 2001.
This year, the rate for bricklayers increased 5%, to $15.91, while the rate for carpenters rose 2.5%, to $18.68. The national average rates for bricklayers and carpenters fell 7% and 2% last year, respectively.
The five most expensive states for average construction workers’ comp rates are Montana, $34.61; Florida, $32.70; Alabama, $31.29; Rhode Island, $23.72; and Maine, $23.41. The five least expensive states are Arizona, $7.71; New Jersey, $7.99; Indiana, $8.49; Kansas, $9.74; and New Mexico, $10.93.
Contractors may soon consider these rates bargains. "Next year, workers’ compensation will undergo dramatic increases," says Dennis M. Carney, a partner with McSherry & Hudson, the workers’ comp broker for Watsonville, Calif.-based Granite Construction Co. He predicts the impact will be felt most by subcontractors, whose rates could climb by as much as 80%. "There will be a marked effect on their ability to perform work, or even stay in business," Carney says. Granite’s risk manager, Deborah S. Jackson, says the firm’s workers’ comp rates already are up from 25 to 30% over a year ago, and could climb higher when California’s new benefit laws take effect Jan. 1.
Evidence of the precariousness of workers’ compensation costs can be seen in the dramatic rise in the "residuals" market. It has increased 76% this year, and the cost of premiums is up 63% over a year ago, says Peter M. Burton, senior division executive for Boca Raton, Fla.-based National Council on Compensation Insurance Inc.
The New York Compensation Insurance Rating Board estimates that workers’ compensation claims related to the World Trade Center attack could reach $1.3 billion. It was by far the largest workers’ comp disaster in history, and its impact will be felt in increasing compensation costs across the country, says NCCI spokesman Gregory Quinn.
Two years ago, insurance trust funds were riding the wave of a robust equity market and were able to use investment income to reduce workers’ compensation premiums. The tumbling stock market has left state-run workers’ compensation programs in disarray.
Last year, in the 40 states in which NCCI operates, there were nine filings for rate increases. In the first half of 2002, there were 10 more filings for increases. The eventual number could be twice that, Burton says.
The Florida Dept. of Insurance has before it a proposed workers’ compensation premium increase of 21.5%. Insurers are seeking increases of 20.2% in South Carolina, 16% in Hawaii and 14.3% in Iowa. Rate increases of 9.3% and 5.9% already have been approved by insurance officials in Kentucky and Oklahoma, respectively.
"We face a two-pronged sword," says James K. Granata, corporate manager of employee benefits for Pasadena, Calif.-based Parsons Corp. Granata says rising medical costs and legislated increases in disability payments have pushed Parsons’ workers’ compensation rates up 16 to 18% this year. Parsons has a fixed-cost contract with insurance carrier AIG, covering all job classifications, and is lucky to have it, he notes. Costs are expected to continue to rise "and I fear we will be sucked into the hole with everyone else, despite an excellent record," says Granata.
Workers’ compensation carrier problems exist in every state, Burton contends. The recent failure of Reliance Insurance Co. was the largest workers’ compensation insolvency in history, he notes.