Benchmark study shows Montana with highest workers’ comp rates; some providers stung by unemployment
This might seem an odd way to rank something. Normally, when we say something is Number One, that’s a good thing.
Not in this case.
As ranked in a biennial study by an Oregon state consumer agency, Alaska and Montana swapped places since 2008 in rankings of states with the highest premiums for workers’ compensation insurance.
Thus, Montana has moved from second-place to first, as the state with highest 2010 worker’s compensation premiums. Alaska was the worst in the 2008 study but dropped to second-worst in the rankings released Oct. 20.
51 rankings: all states and D.C., too
According to a Department of Consumer and Business Services’ press release, “The study ranks all 50 states and the District of Columbia according to their workers’ compensation premium rates. The median index rate, a benchmark for rates nationally, dropped to $2.04 for 2010, 10 percent below the 2008 median value. Oregon’s index rate, at $1.69, was 17 percent below the 2010 median.”
An Oct. 21 article at Bloomberg Businessweek.com says, “The study undertaken every two years by the . . . [department] found Montana’s premium rates this year are $3.33 for every $100 of payroll.” That’s 163 per cent of the national median, which Businessweek says is “$2.04 per $100 of payroll.”
Montana is one only three states that “topped the $3 mark.” The other two are Alaska, with an index rate of $3.10, and Number 3 Illinois, at $3.05, which puts them, respectively, at 152 per cent and 149 per cent of the median.
Business Insurance notes that “North Dakota had the lowest rates at $1.02 per $100 of payroll, or 50% of the national median.”
National median dropped 10 per cent
According to the study, a summary of which is here, including an easily read table, the median dropped 10 per cent from 2008 levels.
California’s re-ranking exemplifies significant change over the two-year period, moving from 13th most expensive in 2008 to eighth, with a 2010 cost of $268 per $100 of payroll.
Wisconsin also saw a significant change in its ranking, moving from No. 34 in 2008 to No. 19 this year, with its average rates at $2.21 per $100 of payroll, or 108% of the national median.
Delaware, with a rate of $1.84, improved to 34 on the list from its 2008 ranking of 7. The District of Columbia also made a big move, falling to 48 from 29. Indiana and North Dakota remain unchanged; they were 50 and 51 in 2008 maintain those spots, with respective rates of $1.16 and $1.02.
A ‘black eye’ for Montana
According to the Businessweek story, Montana is not happy about having the highest rates in the nation. “Montana Chamber of Commerce president and CEO Webb Brown said in a statement Thursday the ranking is a black eye for the state. His organization called on the Legislature to change workers compensation laws when it meets in January.
“The business association says high premiums hurt wage levels and Montana’s image as a business-friendly state.”
Unemployment pinches workers comp providers
The economy is putting pressure on the workers’ comp industry, in general.
According to a Reuters analysis piece posted Oct. 22, “Persistently high unemployment translates to fewer workers to cover, which cuts into revenue. And insurers known as ‘workers comp’ providers face higher payouts because claiming workers are staying on benefits longer for lack of other jobs.
“Companies such as Travelers Companies Inc, Employers Holdings Inc, SeaBright Holdings Inc and Amerisafe Inc are already seeing the effects of weak employment. Even if the jobs market is showing marginal improvements, these companies are still likely to suffer.”
Seabright reported $15.5 million loss
This MarketWatch piece from July addresses Seabright’s troubles:
SeaBright . . . reported a second-quarter net loss $15.5 million, or 74 cents a share, versus net income of $4.3 million, or 20 cents a share, a year earlier.
The loss came as the insurer had to set aside more money to cover higher-than-expected claims from policies sold in previous years. Most of this was driven by SeaBright’s book of workers’ compensation insurance it sold in California.
“During the second quarter we undertook prudent measures to strengthen our loss reserves to reflect recent adverse claim development we have experienced, primarily in our California book of business,” John Pasqualetto, SeaBright’s chief executive, said in a statement.
“In California, we encountered increasing medical cost trends and longer average claim durations, made worse by protracted high unemployment levels,” he added.
The Reuters piece quotes an investment manager and points out potential problems for the industry: ” ‘SeaBright is a very clear warning sign to investors that there could be some negative surprises in this space,’ said James Ellman, president of San Francisco-based investment manager Seacliff Capital.
” ‘It is an industry where losses are going up and this, unfortunately, happens when you get a recession.’
Some companies too specialized
“The companies that could be hit hardest are the ones that focus exclusively on workers compensation. SeaBright’s share valuation is among the lowest in the industry, trading at just under half its book value, or the net accounting value of its assets.
“If the job market remains soft, the company could be hurt even further, Ellman said.”
Even though an economy with fewer workers is also an economy with fewer injured workers, fewer premium fees coming in adds pressure on insurers already facing rising costs, longer recoveries, and reduced opportunities for alternate work that might be available to ease a recovering worker back into full time employment.
“Analysts say performance in the industry is very much a company-by-company story,” says Reuters, “depending on what industries and regions a company participates in and how well it does at managing its book.”
