Several months back we were one of the first to publish the announcement that NY workers compensation rates were increasing by an average of 11.5% effective October 1st, 2012. In a memo announced on July 23rd the Department of Financial Services (DFS) revealed that they have DISAPPROVED the NY Workers Compensation Insurance Rating Board’s rate increase . Why then do we believe this will ultimately cost NY workers compensation insurance policy holder’s more money? The reason is quite simple; supply and demand.
Let me splain Lucy, (dating myself). It comes down to two words, rate adequacy. At present the loss ratios (the ratio between premiums taken in to loss paid out by insurance companies) is in excess of 112% which means that for every dollar in premium a NY workers compensation carrier receives they are paying $1.12 in losses. If workers compensation insurance carriers continue to lose money AND they can’t increase rates to off set losses they simply stop writing that particular line of insurance. The end result is that the end user business owner has less options or less workers comp insurance carriers to compete for their business. Thus the classic supply and demand squeeze. As of this writing Chartis Insurance has already cancelled or non renewed almost 40% of their workers compensation policies as they are losing money on the line. Hartford too is decreasing market share.
There is a large contingent of businesses that refuse to place their business with the State Insurance Fund which is FALSELY considered the cheapest; the reality is it’s somewhere in the middle. Further they feel the State Insurance offers poor service, painful workers compensation audits, and porous claims handling.
It’s our belief that the free market should take care of itself. The companies with the poor results will fall while the stronger ones will continue to write business at more competitive rates gaining more market share. If the workers compensation carriers feel the chasm between rates and results is too wide you will only have one very expensive option available, the State Insurance Fund which has proven a suspect value for those businesses trying to control their workers compensation costs.
In the short term NY business owners dodged a bullet, as rates will remain flat for the majority of businesses. Longer term as in 6 to 12 months, batten down the hatches as Issac isn’t the only storm out there.
