Workers Compensation Rates Change – Cost Increase for Most Companies

Massachusetts has highly publicized the average rate decrease of over 2% effective September 1, 2010 - This is misleading for many Bay State employers - Despite this claim, most companies will incur a cost increase upon policy renewal.

One reason for this is that the rate change varies by job classification. For example, the very low rate for clerical employees is reduced from 12 cents to 9 cents per $100 payroll (-25%) while sewer construction increases from $6.28 to $7.61 (+21%). In order to determine the cost impact of the rate change, an employer must review the class codes used on its own workers compensation policy.

Each employer pays a rate per $100 of payroll. The rate depends on the type of employment and the classification codes that are assigned to the employer. There are over 400 class codes in Massachusetts. The new rates apply to the next renewal policy on or after Sept. 1, 2010

Of the 66 construction class codes, 44 will have rate increases. Ten of these increase by over 20%.

But that is only half of the story. Along with the rate changes there is a change in the experience modification formula. This increases the cost for the vast majority of employers with average premium over $5,500 per year. In most cases, this offsets any rate decrease and exacerbates a rate increase. In some cases, the combined cost increase is 30% or more.

Is the rate setting process simply mysterious or more like a street wise shell game? It is noteworthy that the “players” in rate setting are mostly from the insurance industry, claimant’s bar and Massachusetts Rating Bureau, Division of Insurance and Attorney General’s office. There appears to be minimal employer representation.

We recommend that you contact your insurance professional well in advance of policy renewal to review and discuss these important changes. As Insurance Advisors, we are also available to review your company’s situation.

The Insurance Advisory LLC has been an approved program provider of the Workers Compensation Rating Bureau of Massachusetts since 1991. Please contact John Sullivan at 800-922-9161 or e-mail JS@theinsuranceadvisory.com.