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Workers’ comp rate hike spike blamed on jobs

High unemployment, medical costs drive 6.9 percent increase

The 6.9 percent average hike in the rates used to set workers’ compensation premiums, which took effect Jan. 1, has been driven by macroeconomic forces and tied to New Jersey’s escalating medical costs and lower overall payrolls, a result of the relatively high unemployment rate, according to experts.

Net premiums, the funding source for benefits, have dropped from $1.90 billion in 2008 to $1.64 billion in 2010, according to the New Jersey Compensation Rating and Inspection Bureau, more commonly know as CRIB, which collects data on workers’ compensation and is under the supervision of the state Department of Banking and Insurance.

“When you combine, at one time, an increase in claims, a decrease in premium (paid into the system per-employee by companies) and increasing medical costs, it’s likely to have upward pressure on rates, and that’s what you’re seeing,” said Frederick A. Huber, executive director of CRIB.

Rates, which are part of a formula used to compute individual companies’ premiums, are set for approximately 560 “classification codes” representing industries, according to CRIB. Approximately 80 percent of those employer class rates increased Jan. 1, with the two hardest-hit sectors being manufacturing and construction, which have seen a drop in payroll and the eventual payroll-driven premiums collected by insurance companies, Huber said.

The increase in rates should be a wake-up call that New Jersey’s system must evolve to offer employers more affordable options for coverage in the mandatory insurance program, according to John J. Sarno, president and general counsel of the Employers Association of New Jersey.

“Those alternatives might be private plans. They could be self-insured plans,” Sarno said. “The program’s on automatic pilot. It’s viewed as a tax, and there’s just not a lot of innovation.”

Sarno said New Jersey’s small businesses, which dominate the landscape, have fewer resources than larger employers to explore insurance cooperatives and other cost-saving options.

“There hasn’t been any new thinking about workers’ compensation in over a hundred years. There’s been no new business model in over a century,” Sarno said.

Workers’ comp is a state-mandated insurance program that provides medical care, wage replacement and disability benefits to employees who suffer job-related illness or injuries, and death benefits to dependents of workers who die as a result of their job.

Under the program, workers forgo the right to sue employers for damages or pain and suffering.

In addition to rising rates, the maximum weekly workers’ comp benefit for all injuries except permanent partial disabilities climbed to $810 for 2012, from 2011’s maximum weekly benefit of $792, according to CRIB.

Each year, CRIB makes rate recommendations to the Department of Banking and Insurance commissioner, who reviews and makes a final determination on the rates, which are used by all insurance carriers covering workers’ comp in the state.

For 2011, rates went up 3.9 percent on average, which came on the heels of two decreases in rates.

The premiums employers pay for workers’ comp insurance are calculated using the classification rate and each company’s payroll, safety record and the cost of its claims — known in the insurance industry as “experience modification,” which is similar to what a driving record is to auto insurance. Insurance carriers are able to compete with one another by adjusting their premiums and products using deductibles, dividend programs and other product features.

In 2010, New Jersey Manufacturers Insurance Co. had a 22.4 percent workers’ comp market share, or $365.9 million in premiums; followed by Hartford Insurance Group, with 11.5 percent market share, or $187.5 million in premiums; followed by Liberty Mutual Insurance Cos., with 9.7 percent market share, or $158.6 million in premiums.

For employers’ part, they can help control workers’ comp costs by improving their safety records, according to Patrick Breslin, director of communications at New Jersey Manufacturers.

“The most direct way to control your workers’ comp costs is to prevent the accidents from happening in the first place,” Breslin said.

“The best reinforcement for safety practices is a low accident rate, which directly translates to lower premiums for that business.”

 

E-mail to:  ktarbous@njbiz.com

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