11 Dec 2018

Workers’ Compensation Premium Rates Continue Downward Trend: 2018 Update

Oregon Report Provides Additional Evidence of a Continuing Downward Trend in Workers’ Compensation Premiums

By Roger Rabb, J.D.

**Updated with data from November 2018 report**

As states compete not just with foreign job markets but with each other to attract new business development, the cost of labor is often a primary concern to potential business suitors. While employee wages are very important to the calculation, the cost of workers’ compensation coverage can also be a less obvious cost of doing business. The Information Technology and Research Section, Central Services Division, of the State of Oregon has released a report, Oregon Workers’ Compensation Premium Rate Ranking for 2018, in which they evaluate the workers’ compensation premium costs for the State of Oregon in relation to other states and the District of Columbia. This biennial look at premium costs has been going on since 1986 and provides a snapshot of the trends in premium costs.

Using primarily the National Council on Compensation Insurance (NCCI) classification codes, and the closest analogous data points for those states that do not use the NCCI codes, this report compares the premium rates for 50 occupational class codes that are among the most relevant to the Oregon economy. The occupational codes used in the study with the largest Oregon payroll amounts include clerical office employees, outside salespersons, professional college employees and clerical, physician and clerical, restaurant and drivers, hospital professionals, store retail, automotive service and repair, trucking employees and drivers, and health care employees for retirement living centers.

It should be noted that a report comparing rates from a different selection of occupational classes could easily come up with different results. Moreover, the exact set of classes used every 2 years changes, meaning that comparisons over time will be inexact. It should also be noted that while the most recently available data was used for these 2018 results, for many states the most recent data was from early 2017. However, this report should still be useful for spotting overall trends.

Findings

The study uses a premium rate index (PRI), calculated as the premium cost per $100 of payroll, to compare the premium costs between states. The PRIs for 2018 ranged from a low of $.82 in North Dakota to a high of $3.08 in New York. By comparison, in the previous report in 2016 North Dakota was also the lowest at $.89, while California was the highest at $3.24. The other states that came in on the low end in 2018 were Utah, West Virginia, Arkansas, and Indiana, all of which were $1.06 or below. Coming in at the high end in 2018 behind New York were California, New Jersey, Alaska, and Delaware, all of which were at $2.50 or higher, with the next highest being down at $2.27. Only 13 states were above $2.00, while 18 states were at or below $1.50.

The median PRI for all states in the 2018 study was approximately $1.70, the lowest on record, down from the 2016 median of $1.84. Over the 32-year span of the Oregon reports, these current numbers compare to a national median of $3.18 in the initial 1986 report, with the highest median being $4.35 in 1994. Since then, the national median has been on a steady decline, showing only a slight uptick from 2000 to 2004, at which point the national median was $2.58. U.S. Bureau of Labor Statistics data over the past 20 years, which calculates workers’ compensation costs per $100 in wages, tracks very similarly to the national median PRI results from the Oregon biennial reports.

This is not to suggest that rates have not been going up anywhere recently. According to this report, in 2012 and 2013 more states showed increases in rates than states showed decreases. In 2014, there were the same number of increases as decreases. Excluding four states with monopolistic state funds, in the five-year period from 2012 to 2016, 26 states showed a net reduction in PRI, one state showed no change, and 20 states showed an increase. However, in the five-year period from 2014 to the end of 2018, 44 states showed a net reduction in PRI, with only three states showing an increase, suggesting that the most recent trend is downward in most jurisdictions.

For purposes of comparison, some states of interest and their recent trends include:

California, which in 2006 had a PRI of $4.13 (ranking 2nd highest nationally), in 2012 was at $2.92 (3rd nationally), in 2016 was at $3.24 (ranking 1st nationally), and as of January 1, 2018, was at $2.87 (ranking 2nd highest in the 2018 rankings).
Florida, which in 2006 was at $3.32 (ranking 6th), in 2012 was at $1.82 (ranking 29th), in 2016 was at $1.66 (ranking 33rd), and as of January 1, 2018, was at $1.81 (tying for 20th highest in 2018).
Illinois, which in 2006 was at $2.69 (ranking 20th), in 2012 was at $2.83 (ranking 4th), in 2015 was at $2.23 (ranking 8th on the 2016 listings), and as of January 1, 2018, was at $1.80 (ranking 22nd highest in 2018).
Oklahoma, which in 2006 was at $2.96 (ranking 13th), in 2012 was at $2.77 (ranking 6th), in 2016 was at $2.23 (ranking 8th), and as of January 1, 2018, was at $1.71 (ranking 24th highest).

As you can see from these numbers, among these states, Florida had the largest 12-year drop in premiums, cutting their PRI from $3.32 to $1.81 over that period and going from 6th highest to 20th highest. Most of that drop came in the late 2000s, however, and the state actually showed an increase of $.15 in the most recent two-year period. Both Oklahoma and Illinois have shown bigger drops in premium prices since 2012, with the former dropping $1.06 and the latter $1.03 over that period. PRI reduction in the last two-year reporting period for those two states has moved them from a tie for 8th highest to ranking 24th and 22nd highest, respectively. California, which showed a large $1.21 decrease from 2006 to 2012, saw an increase of $.32 by 2016, but has moved back down to $2.87 in the most recent reporting period, slightly below its 2012 number.

In addition to the overall downward trend in the national PRI over the past 20 years, another trend that appears from the data is a reduction in the disparity between premium costs from state to state. In 2004, for example, the maximum PRI was $6.08, the median was $2.58, and the minimum was $1.06. For comparison, in 2018, the maximum was $3.08, the median was $1.70, and the minimum was $.82. Not only did the real dollar disparity between the highest and lowest PRIs shrink from $5.02 to $2.26 during that 14-year period, but the standard deviation about the median also got smaller, indicating a tighter cluster of results. That is perhaps to be expected if rates are going down relatively consistently across jurisdictions over time, because with smaller numbers there is less room for deviation.

Caveats

The data from this Oregon report should not be taken as an exact representation of workers’ compensation premium amounts. There are more than a few limitations to the data and analysis. For example, as noted above, the selection of particular class occupational codes effectively weights the PRIs derived from the data to the characteristics of the Oregon economy, and different numbers would be calculated if a different state with different economic priorities had been used.

Moreover, not all states use the NCCI classifications, and even among those that do, some states have unique classes or lack rates for all classes, and some of the data was adjusted to account for these issues. In addition, among other intentional omissions, the study does not attempt to account for such things as policies with large deductibles, insurer dividends, loss cost multipliers, state disparities in payroll calculation methodologies, or self-insurance.

The report does, however, provide one lens through which to view current trends in national workers’ compensation premium rates, and the picture that clearly appears is one of declining rates.