On the issue of rising medical costs, he noted that 60 percent of every comp claim dollar now goes to medical--the cost of getting the injured back to work.

Mr. Donnelly said that over the past 10 years there has been 112 percent inflation in average claim cost. This amount, he pointed out, was higher than the increase in gasoline prices during the same period.

He suggested that among medical cost areas that need more examination are prescription drugs. Most prescriptions, he said, are being written for brand name pharmaceuticals when generic drugs are available for a quarter of the price.

"There are opportunities for insurers to influence and contain medical cost," he advised.

More emphasis is needed on evidence-based medicine, Mr. Donnelly said, and a way must be found for medical providers to give treatment without focusing on defensive medicine.

He praised reforms made in California and Florida comp programs, which he said have taken costs out of the system. Mr. Donnelly warned, however, that "we must keep working on this," noting that the best reforms are often challenged in the courts, and that judicial rulings that arise can have unintended consequences.

Mr. Donnelly noted that Delaware and New York have been involved in extended discussions of comp system changes without passage of reform. "It's time for those states to act," he said.

Discussing the fallout from the Sept.11, 2001 terrorism attacks, Mr. Donnelly said he does not believe terrorism is an insurable risk. He noted that the Terrorism Risk Insurance Act, which provides a backstop for some insurers' losses due to terrorism, has only been renewed for two years as a partial and temporary solution to the problem.

Insurers, he said, must work with government to craft a permanent solution that safeguards individual insurers so they can meet policyholder obligations.

He urged stakeholders in the system to lobby for a "real solution" to terrorism and to focus on medical inflation, which he said needs "a strong, proactive approach" to contain costs.