Insurers seek 9.1% boost in workers' comp rates
By Frank Cho
Advertiser Staff Writer
After five years of falling costs, workers' compensation insurance rates could be on the rise again for thousands of Hawai'i businesses next year.
The National Council on Compensation Insurance, which represents the industry in tracking and setting rates, has asked the state's insurance commissioner to raise the so-called "loss-cost" portion of workers' comp rates by an average 9.1 percent starting Dec. 1.
It marks the second time this year that the agency has sought an increase in that portion of workers' comp rates for insurers. The NCCI proposed and received approval for a 3.5 percent increase in July, citing increased disability costs for Hawai'i workers. Those new rates are set to take effect in January.
If the most recent proposed increase is approved, much of it would likely be passed on to businesses, some insurers say, because insurers have been losing money covering workers' comp claims.
"We hope the commissioner approves the NCCI filing. Whether it will be enough remains to be seen. Our recent analysis indicates that we are losing a significant amount of money from workers' comp," said Allen Uyeda, president of First Insurance Co. of Hawaii Ltd., Hawai'i's biggest workers' compensation carrier with 17 percent of the market.
According to NCCI's most recent request, the "loss-cost" portion of workers' comp claims for insurers in Hawai'i is expected to rise about 13.3 percent over the next year because of higher medical care costs and the rapidly rising number of claims being filed.
The "loss-cost" portion of workers' comp rates is directly related to covering the cost of claims and does not include the expenses, taxes or profits of insurers. It represents about 60 percent of the premium employers pay insurers.
State Insurance Commissioner Wayne Metcalf said he cannot comment because the proposal is still under review. The state has 90 days to make a decision on the proposal.
NCCI spokeswoman Carolyn Pearl declined to comment on the proposal, citing state rules prohibiting comment while the filing is under review.
Tough time for increase
Following the Sept. 11 attacks and the subsequent economic downturn, whether Hawai'i's struggling business community can afford an increase in insurance costs is still not clear and something the commissioner will have to take into account, experts said.
"This is a terrible time for something like this," said Teena Rasmussen, co-owner of Paradise Flower Farms in Kula on Maui. "That is going to be very difficult for employers. I wouldn't want to be the insurance commissioner right now."
Rasmussen said that following Sept. 11, she has been forced to lay off two of her 31 employees and cut the hours for nine more. If her workers' comp rates rise, she said, she may have to lay off more employees.
"We are on the edge right now and to have your costs increasing just as your revenue is falling is difficult to handle," Ramussen said. "I thought we had this thing under control."
On average, Hawai'i businesses pay roughly $10,000 a year for workers' comp coverage, Uyeda said. So a 9.1 percent increase on even a portion of the insurance rate could mean an increase of thousands of dollars for some employers.
The workers' comp system was designed to cover the medical costs associated with workplace injuries as well as replace wages for lost work time.
Legislation had cut prices
Workers' comp costs increased significantly during the 1980s and early 1990s. The state tried to get control of those costs through legislation in 1995 that limited medical costs to 110 percent of Medicare reimbursement rates. That led to several rate rollbacks that have driven workers' comp premiums down more than 40 percent since 1995.
The insurance commissioner approved a 27.6 percent decrease in 1996 and a 10.5 percent reduction again in 1997 after NCCI filings. NCCI typically files for rate changes annually or when its data suggests that insurers' costs have changed.
"There has been some rate suppression over the last few years because of regulatory and competitive pressures," said Robin Campaniano, president of AIG Hawaii, one the state's biggest insurers.
But workers' comp coverage for businesses and their workers gradually got harder to find and more expensive as a handful of carriers left the market and many insurers ended discounting to make up for mounting losses.
"So the good news about this is that if (the state) approves the filing, insurers will come back in and start selling workers' comp again," Campaniano said.
Still, Campaniano said the filing only covers about half of the rates used to set premiums for employers. He said losses in the wake of the terrorist attacks will likely lead to higher reinsurance costs for insurers, which will also have to be passed along to consumers.
"I had felt that, comparatively, our rates were much better than they were 10 years ago," Rasmussen said. "But when you have been living with the decreases of the last five years and then to have it jump back up is always a hardship."
Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com.
