Alabama Weighs 12.4% Drop in Workers’ Compensation Costs

Alabama insurance officials will consider an industry proposal to lower workers’ compensation loss costs in the state at a public hearing tomorrow in Montgomery.

Citing reduced claims frequency, workers’ compensation insurers have recommended lowering voluntary market loss costs by an average 12.4 percent and assigned risk loss costs by an average 8 percent.

Unless blocked by the office of Insurance Commissioner Jim Ridling, the changes would go into effect next March. Approval would continue a trend that has seen Alabama’s voluntary loss costs drop since 2007, when they fell 5.5 percent. They also fell 9.5 percent in 2008, 2.3 percent in 2009, and 5.8 percent in 2010.

The National Council on Compensation Insurance (NCCI) made the recommendations on behalf of the insurers.

The NCCI overall 12.4 percent voluntary market loss cost reduction reflects the following decreases by industry group:

• Goods & Services: -10.5%
• Office & Clerical: -12.0%
• Contracting: -16.0%
• Miscellaneous: -13.5%

The combined ratio for workers’ compensation insurers in Alabama rose in 2009 to 99 percent, up from 94 percent in 2007 and 2008. But that was still better than most states, according to NCCI.

Loss costs are not the final rates that insurers charge. Insurers use various discount plans, schedule rating and dividends to adjust their own rates, which in recent years has meant premiums for employers have been lower than loss costs by about 6 percent in 2008 and 8.3 percent in 2009, according to NCCI statistics.

Premiums charged by Alabama workers’ compensation insurers totaled $318 million in 2009, down from $367 million in 2008 and $422 million in 2007, NCCI reports.

NCCI reports show that Alabama’s residual market has continued to depopulate. The total number of residual market policies in Alabama has been dropping, going from 2,873 in 2007, to 2,284 in 2008, to 1,755 in 2009. Assigned risk premiums have fallen from $15.2 million in 2007, to $10.3 million in 2008, to $7.6 million in 2009. Alabama’s assigned risks represent only 2.6 percent of state’s premium volume and 7.4 percent of all policies.