Workers' compensation premiums posted a 2% increase this year compared with 2010's national average. The increase will likely set the tone for rate increases to come, say construction-industry insurers tracking states' annual filings this summer.

The year's overall “modest increase in premiums [is] a sign the workers' compensation markets are hardening,” says Peter Burton, senior division executive at Washington, D.C.-based National Council on Compensation Insurance.

NCCI reports that 12 states so far have filed rate changes for workers' compensation premiums this cycle, which started in July, with eight states filing increases and four states filing decreases. This reverses last year's trend, when 23 states filed decreases and only 15 states filed increases, says Burton. He expects to see more increases in 2011.

States filing the biggest increases are Virginia, New Hampshire and Florida, with increases of 10.5%, 9.8% and 8.9%, respectively, says NCCI. Florida's rates are up after eight years of decreases following reforms that by now “have been wrung out of the system,” says Burton.

The biggest rate decreases were filed by Missouri, Kentucky and West Virginia, where flatter claims frequency compared with other states yielded rate drops of 3%, 7.5% and 8.1%, respectively, according to NCCI.

While “each state has its own scenario affecting rates,” overarching factors such as the weak economy and increasing claims frequencies are putting upward pressure on rates. “It's the first uptick in frequency in 20 years,” Burton says.

The 9% increase in claims frequency this year has insurers “unclear whether this frequency increase is a new normal or a short-term phenomenon coming on the heels of the Great Recession,” says Dennis Mealy, NCCI chief actuary. “The workers' compensation line continues to experience an ever-lengthening list of challenges, including poor underwriting results, health-care reform uncertainty and, now, an uptick in claim frequency.”

“Certainly the prolonged recession has had an impact on rates,” says Mary Ann Krautheim, client strategy officer at Chicago-based Aon Corp. She cites lower revenue from year to year, claims development that can take years and medical costs trending upward as factors for climbing premiums.

A foreboding factor for workers' compensation rates are the dwindling reserve positions of private carriers in the last two years, Krautheim says. NCCI estimates a reserve deficiency among private carriers of about $10 billion in 2010, up by $1 billion from the previous year.

The new wellness programs that many contractors are clamoring for may mitigate the trend of rising claims frequency. “With medical costs exploding, that portion of workers' comp is rising,” says Sam Melamed, director of sales at Arlington, Va.-based American Building Contractors, citing anecdotal industry evidence that wellness programs reduce claims and reduce out-of-work time.