AIA Supports Massachusetts Workers' Compensation Legislation

Written by: Brianne Mallaghan

The American Insurance Association (AIA) testified today in support of workers' compensation legislation in Massachusetts that would promote competitive insurance rating among carriers requiring them to operate more efficiently and become more customer-focused. The testimony was presented at a hearing before the Committee on Labor and Workforce Development.

The legislation, House Bill 1853 and House Bill 1864, Acts Relative to the Competitive Determination of Workers' Compensation Insurance Rates, is an important and necessary change to the state's workers' compensation system, according to AIA.

"These bills would move Massachusetts to a 'loss cost' rate making system, similar to that used in 40 other jurisdictions, including all of the other New England states," said John Murphy, AIA Northeast Region vice president, noting that New York most recently passed legislation establishing a loss cost workers' compensation rating system in February 2008. "H. 1852 and H. 1864 do not affect or change the benefits injured workers receive or the process through which they receive them. The bills only change the way that rates for workers' compensation will be determined."

Murphy explained that under the loss cost approach, the commissioner would continue to review and approve the basic building blocks of the rates (known as the "loss costs") so that all companies share the common basis for making rates. The biggest difference from the current system is that under this legislation, companies would have to compete over the elembents within their individual control, such as administrative costs and profit, according to Murphy. The legislation also establishes ranges for the various components that go into making the final rate.

"Moving to a 'loss cost' or competitively rated system will promote stability and reliability for employers and insurers as the system will be de-politicized and based on the fundamental component of insurance pricing -- the actual loss costs," concluded Murphy.

AIA member companies write approximately 23% of the workers' compensation insurance coverage in Massachusetts.

The American Insurance Associaion represents approximately 350 major insurance companies that provide all lines of property and casualty insurance and write more than $123 billion annually in premiums. The association is headquartered in Washington, D.C. and has representatives in every state. All AIA press releases are available at www.aiadc.org.