Photo: Leah-ann Thompson - FOTOLIA

Although medical and indemnity costs continue to soar in many regions across the U.S., recently enacted workers’ compensation reform laws in a number of states and better industry safety and workplace practices are beginning to drive workers’ compensation insurance rates downward, according to industry sources.

“I would definitely say that [the rates are] stable to down, and around the country, we’re seeing rates probably decreasing for people who have a track record of good experience,” says Matt Walsh, managing director of Aon Construction Services Group, a division of Chicago-based Aon Corp.

The National Council on Compensation Insurance (NCCI), Boca Raton, Fla., just beginning its filing season, has so far requested rate decreases for 11 states, increases for three and no change for one. “Eleven filings don’t make a whole year, but at least the pattern so far is leaning toward some good experience in a lot of states,” says Peter Burton, NCCI senior division executive for state relations.

Burton says reform in states like Florida, which enacted a workers’ compensation insurance reform law in 2003, can have a significant impact. NCCI is requesting a 13.5% decrease in Florida, following decreases in 2005 and 2004.

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  • Other states that have adopted reform measures within the past few years include Texas, Oklahoma, Missouri and West Virginia. Just how the laws specifically reform their states’ workers’ compensation systems varies, but groups like the American Insurance Association say measures should include cost-containment provisions such as medical fee schedules and utilization review and caps.

    The insurance industry is closely watching California, where rates have declined significantly since reform was enacted two years ago. Although heralded as a prime example of the positive impact workers’ comp reform can have, the California state legislature this year passed two bills that could roll back some of the gains made. One would increase the benefits paid for permanent disability; the other would weaken the ability of insurers to control pharmacy reimbursements. If Gov. Arnold Schwarzenegger (R) does not veto the bills by Sept. 30, they automatically will become law.

    Burton says NCCI requested a 5.1% increase in Georgia, largely as a result of the decision by the state legislature to eliminate the state’s financially troubled Second Injury Workers’ Fund. It was created to encourage employers to hire and retain individuals with disabilities or previous injuries. But Bruce Wood, assistant general counsel for AIA, says that “there is no demonstrable evidence” that the fund actually ever fulfilled its purpose. An actuarial study presented to the state legislature this year showed that the fund was $1 billion in debt and would require nearly 70 years to pay off its liabilities.

    Mike Dunham, executive vice president of the Associated General Contractors’ Georgia Branch, says his members benefited from the fund and are concerned that the legislature has not developed—at least publicly—a well thought-out plan to dissolve the fund.

    Some hope for some reform in New York this year. A reform effort led by Gov. George Pataki (R) did not gain much traction in the legislature last year. It would have capped permanent disability benefits individuals could receive over their lifetime but would have increased maximum weekly wage benefits.

    Dan Conway, president of the Construction Risk Management Group and Surety at AIG Inc., New York City, says, “We are hoping that with new changes in Albany...this will be one of the first things that will be looked at, and we have pretty high hopes that this will go through.”