Jennifer Tomilin, vice president and chief underwriting officer for workers' comp at Chicago-based CNA, said she was encouraged by legislative activity in two states. “What I saw happen in California and Tennessee last year was extremely positive,” she noted.

However, as the actual regulations are promulgated in California to implement reforms hashed out last year between lawmakers and Gov. Arnold Schwarzenegger, look for some political backlash and efforts to rewrite some of the law. (See related story on cover page.)

In Tennessee, Insurance Commissioner Paula Flowers last year ordered with great fanfare a 6.3 percent cut in the workers comp “loss costs” figure, which is used to set rates throughout the state. She said the $69.4 million savings that state employers will enjoy resulted from reforms signed by the governor that, among other changes, lowered the multiplier on permanent partial disability benefits and eliminated the requirement for case management services.

Also, under the new law a new medical reimbursement rate schedule goes into effect this July, which Ms. Flowers said will likely lead to rate adjustment and additional savings.

Industry leaders see evidence of a softening market, but Giggy Martindale, workers' comp product manager for The Hartford, said that despite this trend, “overall, the line should be profitable.”

“There is definitely a lot of competition out there. For the most part, we are getting the pricing we need, and if we cant get that pricing, then we walk away,” he said. “We need to exercise underwriting discipline and not make those same mistakes we all made back in the 1990s.”

Mr. Martindale sees regulators and legislators in a variety of states looking at legislation to control costs, but also notes that regulators at the same time have imposed more reporting requirements that ultimately drives up the cost of providing coverage.

Ms. Tomilin also sees some market softening but no free-fall in prices. “What I have noticed is that there seems to be more competition for the higher layers for the large-deductible policies,” she said.

Large-deductible policies have been the subject of some regulatory concern, particularly at National Association of Insurance Commissioners meetings, but attempts to create some guidance in the form of a White Paper seem to have petered out for the time being.

“In the small middle-market, there has been a little bit of softeningbut the national players are at flat [rate renewal] or just a little bit under what it was last year,” Ms. Tomilin said, “so I have not seen an aggressive turn in these market segments.”

The Risk and Insurance Management Society Benchmark Survey of risk managers for 2004?s fourth quarter confirms that not everyone is seeing prices fall. Indeed, “workers' compensation premiums, driven by diverse conditions on a state-by-state basis, showed mixed results for the quarter, but on average experienced a slight uptick in premium levels (1.5 percent) across the country,” according to David Bradford, executive vice president for New York-based Advisen Inc., which conducted the survey.

Texas and Illinois are shaping up as the big battleground states for workers' comp reform.

One of the main components of the package proposed in Texas is allowing the use of networks of medical providers to handle claims. The Cambridge, Mass.-based Workers' Compensation Research Institute estimates that networks reduce costs between 16 percent and 46 percent if all treatment is provided by network members. Reformers also hope to end the practice of workers' comp claimants seeing chiropractors first before seeing a medical doctor.

In Illinois, Gov. Rod Blagojevich will once again attempt to gain passage of some workers' comp reforms after attempts to pass measures last year failed, such as the imposition of fee schedules.

Wisconsin would seem a ripe target for reform, but so far only a study group has been formed to look at rising costs. A recent study by the WCRI put the Badger State at the top of the list with an average claim cost of $1,044 in 2001-02. The median for the 12 states studied was $644. (Wisconsin is one of only three states that does not allow use of a discount medical network or medical schedule fee set by regulators.)

In Oklahoma, Democratic Gov. Brad Henry introduced a reform package that focuses on encouraging mediation rather than litigation and strengthens fraud-fighting tools in the government.

For the few remaining states with monopolistic state funds, privatization may be the answer.

Earlier this month, the West Virginia Legislature approved an overhaul of the state workers' comp fund that will transform it into a privately-operated employers? mutual plan by year's end. The bill would also authorize $300 million to pay off the system's unfunded liabilities.

Democratic Gov. Joe Manchin, who took office this year, predicted that workers' comp premiums should decrease by 10-to-15 percent next year. He said that the state could not create any more new jobs until the system had been fixed. (Private carriers will not enter the market until 2008.)

Keith Bateman, vice president of the Des Plaines, Ill.-based Property Casualty Insurers Association of America, said it is too early to tell if the private market will find a hospitable environment in West Virginia. “There are just too many issues that have to be resolved before we can make any such judgments,” he said.

Flag: Expiration Looms

Head: WC Outlook Grim Without TRIA

By Steven Tuckey

Hanging over any discussion of workers' comp is the possibility that Congress will not renew the Terrorism Risk Insurance Act, set to expire at year's end.

Workers' comp insurers cannot exclude terrorism from their policies, and the loss of TRIAs federal reinsurance backup would leave carriers exposed and employers in high-risk areas hard put to find affordable coverage.

“If it is not renewed, we will have to take some underwriting action to limit our exposure to an acceptable level of risk,” said Giggy Martindale, workers' comp product manager for The Hartford. “I really cant get into a lot of details and I dont want to speculate, but we will take the appropriate action.”

For a line already facing capacity challenges, the non-renewal of TRIA will only leave the market worse off, according to Jennifer Tomilin, vice president and chief underwriting officer for workers' comp at Chicago-based CNA.

“One of the things that worries me the most is that some carriers may not have the surplus and capacity, and if a catastrophic event occurred it could totally wipe them out,” she said. “Those unfunded losses would result in increased residual market loads or assessments against the remaining carriers, which would not only take on losses within their own very high self-insured layers but a portion also of unfunded losses of smaller carriers. So from a matter of economics, it will become a capacity issue.”

Reproduced from National Underwriter Edition, March 4, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.