Workers’ Compensation Premium Rates Continue Downward Trend

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

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 of the Oregon Department of Consumer and Business Services has released a report, Oregon Workers’ Compensation Premium Rate Ranking for 2016, 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 54 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 employees, 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. 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 2016 ranged from a low of $.89 in North Dakota to a high of $3.24 in California. The other states that came in on the low end were Massachusetts, Oregon, Utah, Virginia, West Virginia, Arkansas, and Indiana, all of which were below $1.30. Coming in at the high end behind California were New Jersey, New York, Connecticut, and Alaska, all of which were at $2.74 or higher, with the next highest being down at $2.32. Only 14 states were above $2.00, while 13 states were at or below $1.50. It should be noted that while the most recently available data was used for these 2016 results, for many states the most recent data was from January 1, 2016, and for some the most recent data was from as far back as January 1, 2015.

The median PRI for all states in the 2016 study was approximately $1.84, the lowest on record and a slight drop from the 2014 median of $1.85. Over the 30 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 that 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. However, in 2015 through the most recent information of mid-2016, there were “significantly more” decreases than increases. 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.

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 nationally), in 2012 was at $2.92 (3rd nationally), and as of January 1, 2016, was at $3.24 (ranking 1st in the 2016 rankings).

> Florida, which in 2006 was at $3.32 (ranking 6th), in 2012 was at $1.82 (ranking 29th), and as of January 1, 2016, was at $1.66 (ranking 33rd).

> Illinois, which in 2006 was at $2.69 (ranking 20th), in 2012 was at $2.83 (ranking 4th), and as of January 1, 2015 (the most recent data), was at $2.23 (ranking 8th on the 2016 listings).

> Oklahoma, which in 2006 was at $2.96 (ranking 13th), in 2012 was at $2.77 (ranking 6th), and as of January 1, 2016, was at $2.23 (ranking 8th).

As you can see from these numbers, among these states, Florida had the largest 10-year drop in premiums, cutting their PRI in half over that period and going from 6th highest to 33rd highest. Most of that drop came in the late 2000s, however, with only a drop of $.16 since 2012. Both Oklahoma and Illinois have shown bigger drops in premium prices since 2012, with the former dropping $.54 and the latter $.60. The  recent dip in prices for those two states has not helped them catch up to other states, however, as both states are actually closer to the top of the national rankings in 2016 than they were ten years ago. California, while down $.89 from ten years ago, has actually seen an increase of $.32 since 2012, making it the most expensive state for premiums in the current rankings.

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, with a standard deviation of $.87. For comparison, in 2016, as noted above, the maximum was $3.24, the median was $1.84, and the minimum was $.89, with a standard deviation of only $.49. Thus, not only did the real dollar disparity between the highest and lowest PRIs shrink from $5.02 to $2.35 during that 12-year period, 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.

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