Gov. Healey Says Rejection Will Save Mass. Companies Practically $80 Million
BOSTON, MA — The state’s Division of Insurance coverage (DOI) has rejected a proposed 7.1% statewide common enhance in staff’ compensation insurance coverage charges requested by the Workers’ Compensation Rating and Inspection Bureau of Massachusetts (WCRIBMA) for July 1, 2025. The ruling in Docket No. R2024-01, dated Might 15, 2025, was based mostly on the Commissioner’s discovering that the WCRIBMA offered inadequate proof to help its proposed methodologies, significantly for loss growth and underwriting earnings.
The rejection will save Massachusetts companies practically $80 million, based on a press launch from the Healey-Driscoll Administration. This follows a 14.6% lower in staff’ compensation charges authorized in 2024, which saved employers an estimated $87 million.
Governor Maura Healey supported the Choice, stating, “With in the present day’s motion, we’re saying no to any elevated staff’ compensation charges for our corporations. We’re doing all we will to scale back enterprise prices.” Lieutenant Governor Kim Driscoll expressed related help, highlighting the administration’s deal with serving to companies succeed.
The Submitting and Procedural Historical past
The WCRIBMA, representing its member insurers, submitted its normal fee revision proposal on November 15, 2024, concentrating on a July 1, 2025, efficient date. Insurance coverage Commissioner Michael T. Caljouw appointed Jean F. Farrington, Esq., and Matthew A. Taylor, Esq., to supervise the matter.
After a public remark listening to and prehearing convention in January 2025, the proceedings included cross-examinations of witnesses from the WCRIBMA, the Legal professional Normal’s Workplace (AGO), and the State Score Bureau (SRB) throughout the Division of Insurance coverage. Each the AGO and SRB submitted advisory filings difficult a number of facets of the WCRIBMA’s proposal.
Statutory Framework: A Excessive Bar for Charge Approval
The premise for the Commissioner’s evaluation is Massachusetts Normal Legal guidelines, Chapter 152, §53A. This legislation requires that staff’ compensation charges should not be “extreme, insufficient, or unfairly discriminatory” and should “fall inside a variety of reasonableness”. The duty to show this falls on the filer – the WCRIBMA – to point out that its proposed charges meet these statutory requirements.
The Supreme Judicial Courtroom has upheld the Commissioner’s authority to evaluation every factor of a fee submitting and reject proposed charges if any element fails to fulfill the usual. The Commissioner isn’t required to approve parts that would lead to even barely extreme charges. The principle query for the DOI was whether or not the WCRIBMA’s submitting offered an inexpensive foundation, by way of data, strategies, and evaluation, to find out future charges.
Essential Dispute: Loss Growth Methodology
A significant disagreement targeted on the Loss Growth Issue (LDF), which estimates the final word price of claims began in a selected coverage yr. The WCRIBMA proposed to calculate indemnity LDFs for paid losses by averaging two years of insurer-reported losses (Coverage Years 2021 and 2022), whereas utilizing a five-year common for paid-plus-case LDFs. This method continued a way rejected by the Commissioner within the 2024 fee choice.
The WCRIBMA argued {that a} shorter expertise interval for paid losses would higher replicate what it referred to as an “period of quickly and systematically altering financial situations” in 2021 and 2022. They recommended that responsiveness needs to be prioritized to seize these adjustments shortly.
The SRB and the AGO argued that this two-year common for paid losses would doubtless produce extreme and fewer steady charges. They beneficial persevering with the methodology authorized in 2024, which makes use of a five-year common for each paid and paid-plus-case LDFs. The SRB’s witness famous {that a} five-year common for paid losses creates an estimate nearer to that for paid-plus-case losses, suggesting larger consistency.
The DOI agreed with the SRB and AGO, discovering the WCRIBMA’s arguments weak. The ruling famous {that a} five-year expertise interval presents a extra strong dataset to watch variations and patterns. “A paid loss LDF that averages solely two information factors… reveals solely a variance between two years… inadequate to derive a development,” the ruling acknowledged.
The Commissioner discovered it illogical to base the LDF on two years of information (2021 and 2022) that may replicate restoration from the weird office situations of the COVID-19 pandemic, somewhat than a steady, predictive development. The DOI famous that historic information, together with the pandemic years, is a part of the document and shouldn’t be selectively ignored. Consequently, the DOI discovered that the WCRIBMA failed to supply enough proof that its two-year methodology for paid loss LDFs was higher than the beforehand authorized five-year methodology. This similar logic was utilized to the loss development issue, with the DOI stating {that a} five-year expertise interval needs to be used.
Underwriting Revenue Provision: A Problematic Method to Truthful Return
One other key situation was the Underwriting Revenue Provision (UPP), designed to offer insurers a good and cheap fee of return. The WCRIBMA once more proposed to interchange the established normal methodology with a “premium weighting” method inside its Inner Charge of Return (IRR) mannequin. This methodology offers extra weight to corporations based mostly on the quantity of staff’ compensation premium they write in Massachusetts, excluding people who don’t write such premiums within the state.
The WCRIBMA claimed its premium weighting can be extra correct and consultant for Massachusetts insurers, arguing the usual mannequin’s pattern portfolio was “unacceptably unrepresentative”. They cited the Supreme Courtroom case Federal Energy Fee v. Hope Pure Fuel to help their revenue provision, noting that “the return to the fairness proprietor needs to be commensurate with returns on investments in different enterprises having corresponding dangers”.
The DOI, SRB, and AGO discovered this reasoning problematic. The ruling indicated that the premium weighting methodology fails the Hope check exactly as a result of it doesn’t present the mandatory comparability to different investments with related dangers. “The usual methodology would examine the return on investing within the Massachusetts staff’ compensation business to the return on investing within the nationwide property casualty enterprise,” the ruling defined. By limiting its evaluation to corporations already invested within the Massachusetts staff’ compensation market, the WCRIBMA’s mannequin successfully compares their anticipated returns solely to their very own, failing to ask if the return is similar to related alternate options.
Moreover, the DOI discovered that the WCRIBMA did not reveal any important distinction in threat between Massachusetts-specific staff’ compensation writers and the broader property and casualty business. The declare that the premium-weighted pattern was extra “consultant” was thought of inadequate with out explaining what dangers make the broader business totally different.
The DOI’s ruling identified as a flaw within the WCRIBMA’s mannequin that the “per firm premium” parameter rests largely throughout the discretion of the regulated entities”. Thus, occasions unrelated to threat, reminiscent of market entry, exit, or mergers, might change the mannequin’s output even when precise funding belongings and whole premium written remained similar. Such a strategy may stress corporations to vary their conduct and handle the methodology itself somewhat than the precise dangers.
The DOI decided that the WCRIBMA didn’t meet its requirement to point out that its proposed UPP calculation, utilizing premium weighting, would lead to charges that aren’t insufficient, extreme, or unfairly discriminatory. “The methodology fails to incorporate the mandatory comparability to returns on different investments of comparable dangers described in Hope,” the ruling confirmed.
Different Disputed Points
- Escalation Issue: The WCRIBMA proposed an escalation issue of 1.044 to regulate indemnity paid losses for pre-1986 claims topic to annual cost-of-living changes. With fewer than 50 such claims remaining open, the SRB and AGO questioned the reliability of the issue, which seemed to be based mostly on an outdated 2003 simulation mannequin that hadn’t been run for years or adjusted for present reliability. The DOI discovered the proposed issue unsupported, noting that escalation elements usually lower over time and that the proposed issue didn’t replicate this or clarify why values for 2022-2024 had been the best in 15 years. The WCRIBMA was requested to offer a radical evaluation of those claims in any future submitting utilizing an escalation issue.
- F-Courses: These are classifications for workers coated below the U.S. Longshore and Harbor Staff Compensation Act (USL&HW). Because of the unavailability of countrywide F-class information from the Nationwide Council on Compensation Insurance coverage (NCCI) beforehand used, the WCRIBMA this yr weighted solely Massachusetts expertise and present fee relativities. The SRB expressed concern that these closely weighted present charges restricted responsiveness to countrywide adjustments. Whereas acknowledging the information problem, the DOI requested the WCRIBMA to discover all accessible choices to acquire broader information on F-class expertise in different states for future filings to enhance accuracy.
- Future Submitting Dates: The AGO proposed that the Commissioner order the WCRIBMA to make one other fee submitting in November 2025 for charges efficient Might 15, 2026, citing issues that charges authorized for one yr may grow to be extreme in a second yr as a result of downward developments. The DOI heard no robust argument supporting this proposal and declined to order an earlier submitting or change the standard July 1 efficient date cycle.
Value Containment Measures Deemed Enough
One space the place the WCRIBMA met the DOI’s necessities was in exhibiting acceptable price management applications by its member corporations, as required by M.G.L. c. 152 §53A(13). The submitting included surveys from the ten largest NAIC insurer teams writing staff’ compensation in Massachusetts, detailing efforts in claims administration, premium assortment, and expense management.
Insurers reported efficiently sustaining and bettering applied sciences adopted through the COVID-19 pandemic, reminiscent of digital communications, telemedicine, and hybrid audit processes, which have improved effectivity and saved prices. The DOI concluded that this part of the submitting was enough to help a discovering that insurer price management applications are efficient.
Conclusion: Charges Stay Unchanged
Ultimately, the Division of Insurance coverage rejected the WCRIBMA’s submitting for a 7.1% fee enhance. The ruling famous that the WCRIBMA failed its requirement to offer sufficient data for the Commissioner to find out that the proposed charges weren’t extreme, insufficient, or discriminatory, and fell inside a variety of reasonableness.
“Any cheap particular person would acknowledge that the multi-year impact of the pandemic on loss information couldn’t be captured in any potential two-year expertise window. It’s subsequently illogical to proceed utilizing solely two years of loss information for growing indemnity LDFs,” the officers wrote. Relating to underwriting earnings, the premium weighting methodology was discovered to fail key exams of comparative threat outlined within the Hope choice.
Whereas rejecting the rise, the DOI additionally decided that no occasion introduced convincing proof that the present charges had been extreme. Subsequently, the Commissioner selected to not order a selected lower below M.G.L. c. 152, §53A(8), that means the charges established by the Choice on 2024 charges will stay in impact.
Insurance coverage Commissioner Michael Caljouw praised the State Score Bureau’s work, stating, “The Commonwealth is delivering excellent news for employers fighting rising prices”.
For Extra Data
Readers can obtain the whole textual content of the Division of Insurance coverage’s Choice by clicking here or viewing it beneath:
