Mich. Gov. Granholm Says Business Climate to Benefit From Reduction in Workers’ Comp Rates

Michigan Gov. Jennifer Granholm on Friday announced that Michigan’s business climate will benefit from an expected drop in the Workers’ Compensation insurance rates by an average 11.2 percent
in 2005. Granholm said the rate decline will be the largest Michigan employers have seen in nearly a decade.

“The decline in the state’s average pure premium rate for workers’
compensation is great news for Michigan employers,” Granholm said. “The drop is indicative of Michigan’s positive business climate, which is being furthered by the continued success of open competition in the insurance market.”

The pure premium rate decline is reportedly due, in part, to well-developed safety programs that reduced losses, more seasoned workers remaining in the work force during job reductions over the past two to three years, and the medical fee schedule adopted by Michigan’s Workers’ Compensation Agency, which seems to work better than those in most other states.

“Our workers’ compensation program is under control and doing well for workers and employers and is not experiencing any of the serious problems that are plaguing programs in some other states, such as California and West Virginia,” said David Hollister, director of the Department of Labor and Economic Growth.

The state’s quasi-public Data Collection Agency Board recently approved an 11.2 percent reduction in the average pure premium rate. The rate is the annual yardstick against which private insurance carriers can compare their rate structures for workers’ compensation coverage.

“Pure premium rates are developed by using historical loss data reported by insurance carriers, and by analyzing how this data will be affected on a year to year basis by any law changes or court decisions,” explained David Plawecki, DLEG deputy director.

Although the rate registered small increases in 2003 and 2004, it has
declined in eight of the past 10 years. The rate drop for 2005 is the largest since a 15.7 percent decline in 1996.

“In 1982, Michigan adopted an open rating system for workers’ compensation insurance rates, where carriers write their own rates based on their cost experience,” Plawecki noted. “As a result, the state has a very openly competitive market for workers’ compensation insurance, which has kept rates very low.”