Soaring health-care costs and lower investment income from a topsy-turvy stock market are putting intense pressure on insurance companies to increase workers compensation rates. "The last cycle and this cycle, two-thirds of the filings [for all industries] have been for increases," says Peter M. Burton, senior division executive for the National Council on Compensation Insurance Inc., Boca Raton, Fla.
Specifically, 25 of 38 states have filed for increases in premiums, 10 for decreases and three for no change, says Burton. "It doesnt seem to matter which geographic area" a company is in, adds Marcia DeWitt, president of GuilfordPare, Baltimore, a workers comp consultant.
But these requests for higher premiums have yet to hit many contractors and some firms have even had unexpected relief, according to an annual report compiled exclusively for ENR by New York City-based insurance broker Marsh USA Inc. This years national survey of workers comp rates shows that the average premium for structural ironworkers per $100 of payroll declined 6.7% to $38.49 after climbing 15.1% over the previous three years.
The rate for bricklayers slipped 2.3% to $15.54 this year after increasing 5% in 2002. Rates for carpenters appear to be under the most consistent upward pressure. This years 6.8% average increase lifted the workers comp rate for carpenters to $19.95, 20% higher than it was four years ago.
The five most expensive states for average construction workers comp rates per $100 of payroll are Montana, $35.16; Florida, $33.89; California, $25.30; Alabama, $23.88; and Minnesota, $23.53. The five cheapest states are Arizona, $7.09; Kansas, $9.56; Idaho, $10.23; New Jersey, $10.84; and Arkansas, $11.23.
Florida and California have proposed workers comp reform in an effort to lower their costs (see p. 30). And contractors are pushing safety programs as the most effective way they can control the cost of workers comp. "Rates are going up and our response is always to be safer than we were the day before," says Bill Pinto, president of Hardin Construction Co., Atlanta. "So far, we have been successful in controlling [workers comp] costs but there is a lot of industry pressure for those rates to go up," he says.
A good safety program eventually will reduce premiums, which are based partly on the frequency of claims relative to payroll, says Kristen Albright, general manager of underwriting for Boston-based Liberty Mutual. Because carriers review records in five-year increments, reduced premiums can lag a safety program by several years, she says.
But contractors can achieve much faster results by taking on more risk, says DeWitt. One client, a building contractor working primarily on the East Coast, has been paying over $1 million in annual workers comp premiums over the last several years$800,000 to $900,000 above its losses, she notes.
But that contractor is restructuring its policy this year to include a higher deductible at $500,000. Instead of jumping to $1.5 million, as originally quoted by the carrier, the workers comp premium will drop to $750,000. "If everybody in the company has been educated and trained," the company could save half
a million dollars over the next year, DeWitt says. And even if losses reach the $500,000 deductible, the maximum cost for the next year would be $1.25 million, "so theyre still ahead" of that $1.5-million premium cost, she says.
Summary: Cheap Money Heating Up Costs
Indexes: Tight Markets Squeeze Margins
Materials: Perfect Storm Blows Prices Sky-High
Equipment: Fighting Rising Insurance Rates
Labor: Unemployment Fails to Dent Wage Hikes