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Workers' comp market remains stable: Arkansas rates rise slightly after eight years of declines equal to 44.5%.

WHILE SOME NEIGHBORING states have seen sizable increases this year in the cost of workers' compensation, Arkansas had only a slight rise after eight straight years of falling rates.

In a report to the state Legislature this fall, Arkansas Insurance Commissioner Mike Pickens credited Act 796 of 1993 as the reason the state enjoys "a competitive workers' compensation market with the lowest premium levels in decades."

In July, Pickens announced an overall increase of 1.8 percent in the workers' comp voluntary insurance market and a 5.5 percent increase for assigned risk workers' comp benefits. Until this year however, Arkansas had experienced a 44.5 percent decline over the past eight years.

Lenita Blasingame, deputy commissioner of the Insurance Department, said the workers' comp section is one of its most stable areas now. After major legislative battles in past years between labor and business interests, both sides appear to have declared a truce.

"There's room for improvement," said Dennis Donahou, executive secretary-treasurer of the Arkansas Regional Council of Carpenters, "but we've learned to live within the boundaries."

Pickens, in his legislative report, said the increase this summer was the result of escalating medical costs, along with increased reinsurance costs and insurance for potential terrorism losses.

Although Pickens said Arkansas' market remains strong and competitive, in his report to the Legislative Council and the Senate and House Interim Committees on Insurance and Commerce he also said he expects "to see a continued hardening of the Arkansas market."

"No one is having trouble finding coverage," Blasingame said, adding that when two "fairly significant" insurance companies became insolvent last year, she knew of no disruptions and that companies were able to find other insurers.

"Arkansas' voluntary workers' compensation market would have disappeared and many employers would have found themselves unable to afford workers' compensation coverage, facing the choice of either closing down their business or operating outside the law, had Act 796 not become reality," Pickens wrote to the legislators.

While still citing the positive effects of the act, Pickens also noted that "some of the [improvements brought about by the act] are showing diminishing restraint on rates."

The increases in workers' comp rates this year still look attractive compared with the results of a recent survey of small-business owners in neighboring Tennessee. The National Federation of Independent Business found more than 75 percent of employers who have workers' comp insurance have seen their premiums go up in the last three years. More than 40 percent of those have seen increases of 25 percent or more. Many have seen the cost double, according to the NFIB.

When the General Assembly passed Act 796, it was one of the most comprehensive workers' compensation reform bills in the nation.

While critics say the rate reductions have come at the expense of injured workers whose claims are less likely to be paid, the legislation did make workers' compensation insurance more affordable for employers.

Among its provisions was a strict definition of "compensable injury." It defines injury as compensable if it is caused by a specific incident and is identifiable by time and place of occurrence. For injuries not caused by a specific incident and not identifiable by time and place of occurrence--for instance, carpal tunnel syndrome or hearing loss--the condition is compensable only if the injury is a major cause of the disability or treatment.

On-the-job use of alcohol or drugs creates a presumption that the injury was caused by the intoxication. The act eliminates coverage for injuries caused by horseplay and from recreational or social activities for the employee's personal pleasure.

Earlier this year, a study by Work Loss Data Institute based on OSHA data gave Arkansas a grade of A-.

The study, called "State Report Cards for Workers' Comp," was designed to help employers, insurer, state governments and consultants see which states are doing well and identify factors contributing to cost increases.

Cost differences can play a major role in the competitiveness of companies operating in a state and also on decisions to expand or relocate, the study said.
Arkansas Workers' Comp Trends

Average rate change over the past 11 years

Year Voluntary Market Assigned Risk Plan

1993 0.0% 0.0%
1994 0.0% 0.0%
1995 -12.4% -12.4%
1996 -8.0% -3.7%
1997 -4.7% -7.6%
1998 -9.1% -8.2%
1999 -4.1% -3.0%
2000 -4.5% -2.0%
2001 -7.5% +1.9%
2002 -4.5% -1.9%
2003 +1.8% +5.5%

Source: Arkansas Insurance Department
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Title Annotation:Insurance
Comment:Workers' comp market remains stable: Arkansas rates rise slightly after eight years of declines equal to 44.5%.(Insurance)
Author:Henry, John
Publication:Arkansas Business
Geographic Code:1U7AR
Date:Dec 1, 2003
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