Workers’ compensation insurance rates around the nation continue to drop, due largely to legislative reform efforts in a number of states as well as better safety practices by employers, industry sources report. But some in the insurance industry wonder whether a changed political landscape with more liberal state legislatures and insurance commissioners could slow down or end that decline.

In its annual “state-of-the-line” analysis released in May, the National Council on Compensation Insurance (NCCI) found that 2006 rates were the best that they had been in 25 years, and that trend appears to be continuing into 2007, says Peter Burton, senior division executive for state relations for NCCI. The council has filed for rate increases in two states but for decreases in nine, including a 16.5% cut in Florida, which passed workers’ compensation reform in 2003. “We’re probably just a third into our cycle, but I would say from at least now until next July, as we progress through this filing cycle, we’re probably going to see a much similar pattern,” he says.

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  • In recent years, states have enacted reforms that typically capped benefits while implementing better medical claims management and anti-fraud measures. The most notable beneficiary has been California, which has seen rates drop by more than 35% since 2003.

    But NCCI’s Burton says the more liberal political climate that grew out of the 2006 elections could mean that state legislatures will focus more on expanding benefits than on capping costs. “The cost pressures could be starting to mount if legislatures pass expansions of the benefit systems,” he says, adding that a number of states have new insurance commissioners. “A lot if change is going on at the state government level,” he says. This year, Connecticut, Hawaii, Colorado and Florida attempted to pass legislation that would have expanded benefits.

    Steven Weisbart, chief economist of the Insurance Information Institute, New York City, disagrees. “I don’t think this is a Democratic or a Republican issue,” he says. “I think there are some cases where workers’ comp costs are so high that [the state] is perceived as driving business out of the state.” 

    A growing number of mid- to large-sized firms are choosing to partially self insure by assuming higher deductibles, says Matt Walsh, AON Construction Services Group, Chicago. Nevertheless, “a lot of the state workers’ compensation reform helps everybody,” he says. “As a general proposition, it certainly makes for a better business climate.”

    This year, legislatures in South Carolina, New York and Delaware adopted reform measures. In New York, which has typically had some of the highest rates in the country, Gov. Eliot Spitzer (D) this summer announced with much fanfare that rates overall would drop 20.5%. But some are not so sure.

    Steve Stallmer, executive director of the Associated General Contractors of New York, says his members are concerned about a change in the law relating to the Aggregate Trust Fund that potentially could even cause rates to increase. Steve Lidz, senior vice president of AIG”s Construction Risk Management Group in New York, adds, “I don’t really see a real savings or benefit to contractors.”  He says New York’s labor law typically drives costs for employers more than workers’ compensation claims.