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Competitive Rating in Indiana

Effect of competitive rating in Indiana broken out by three types of rate departures: policyholder dividends, schedule rating, and carrier deviations.;

Pursuant to IC 27-7-2-20 (b), this document is an ongoing report on the effect of competitive rating in Indiana.

IC 27-7-2-20 (b)
"...The bureau shall annually submit data concerning these deviations to the department. Upon receipt, the department shall evaluate the data and prepare a report concerning the effect of competitive rating in Indiana. The department shall make the report available not later than October 31 of each year."

The Indiana Code is available on the State of Indiana website at this address: http://www.state.in.us/legislative/ic/code/.

The "Competition" chart contains information on three types of rate departures: policyholder dividends, schedule rating, and carrier deviations from bureau advisory loss costs and rates, as well as the combined effects of each rate departure component over the years.


Background Information
Indiana has a competitive rating law for workers compensation, enacted January 1, 1990. This means the Bureau files "advisory" rates for voluntary business with the Department of Insurance. "Advisory" means that a carrier has a choice: it can use the advisory rates, or file its own rates with the Department.
 
If a carrier files its own rates it can use the "loss cost" rates and add in a factor for its own expenses, usually called the "loss cost multiplier." This flexibility creates competition. 
 
Carriers can more readily reflect the true cost of operating, reflect their own expense structure, and reflect their own expectation of profit. This allows a competitive market to decide who will be more successful than someone else.
 
The theory is, if a carrier is efficient and keeps its expenses down, it can use lower rates than its competitors and attract more customers (employers who buy insurance). Of course, the level of service provided is another factor employers consider in their insurance buying decisions.
 

Summary
The competitive rating law for workers compensation insurance enacted by the General Assembly in 1990 appears to have achieved the desired outcome of promoting competition among insurance companies in Indiana. The Competition chart shows increasing overall rate departures throughout the nineties decade. The aggregate effect of all three components increased in each consecutive year, indicating strong and consistent competition.

With the hardening of the property and casualty insurance market beginning in the year 2000, discounts on premium dwindled. For example, in the year 2004, on average, carriers filed loss costs and rates 9.1% above the bureau advisory rates, while still offering minimal schedule rating credits, resulting in a net departure from advisory rates of +6.3%.
 
Since 2004, as the insurance market softened through 2008, carriers offered more discounts in loss costs, rates, and schedule rating dropping almost 13% below the advisory level. Since 2009,  the market showed signs of hardening and carriers offered lesser discounts with each successive year through 2016. In the year 2016, on average, carriers filed loss costs and rates 11.1% above the bureau advisory rates, while still offering schedule rating credits of -7.6%, resulting in a net departure from advisory rates of 3.3%.
 
This pattern observed in Indiana (of decreasing discounts in a hard market and increasing discounts in a soft market), appears similar to results experienced on a countrywide basis.
 
Competitive Rating in Indiana
Rate Departures (percentage)
Policy Year Loss Cost / Rate  Schedule Rating  Dividends Total Departure
90 -0.2 -1.2 -2.4 -3.8
91 -0.3 -2.8 -1.9 -5.0
92 -0.9 -2.8 -2.6 -6.3
93 -0.5 -4.2 -1.8 -6.4
94 -0.5 -6.8 -1.1 -8.4
95 -0.3 -9.1 -1.7 -11.1
96 -0.5 -12.7 -1.7 -14.8
97 -1.2 -13.1 -1.2 -15.3
98 -1.7 -16.9 -1.1 -19.4
99 -1.6 -19.2 -1.9 -22.6
00 -0.8 -13.6 -1.4 -15.7
01 -0.4 -8.4 -1.1 -9.9
02 4.7 -3.0 -0.7 1.0
03 6.8 -2.4 -0.6 3.7
04 9.1 -2.5 -0.3 6.3
05 5.1 -4.5 -0.5 0.1
06 2.5 -7.5 -0.2 -5.3
07 1.6 -10.2 -0.3 -9.0
08 -0.6 -12.0 -0.3 -12.9
09 0.5 -11.5 -0.3 -11.3
10 1.4 -12.2 -0.2 -11.0
11 2.1 -11.5 -0.2 -9.6
12 3.6 -8.1 -0.2 -4.7
13 4.2 -6.5 -0.2 -2.5
14 9.0 -5.2 -0.2 2.6
15 8.4 -4.8 -0.2 3.4
16 11.1​ -7.6​ ​.2​ 3.3​​
 

Workers Compensation Results
Indiana workers compensation results compare favorably to the country as a whole - when looking at combined ratios, adjusted loss ratios, average rates, number of carriers writing in the state, and NAIC report on profitability. The 2016 results again show Indiana in a favorable position relative to other states. These WC results are shown on the ICRB website.

As expected, the assigned risk market grows and shrinks with the hard and soft market cycles. Assigned risk calendar year premium peaked in 1991 at $103 million and reached its lowest point in 1999 at $10 million. In recent years premium has fluctuated from $26 million (2010) to $71 million (2014). The latest year (2016) shows annual premium at $58 million, two consecutive years of assigned risk market premium decreases.
 
 
Number of Insurance Companies
Of 51 jurisdictions, Indiana ranks sixth in number of insurance companies writing workers compensation in the state at 329.
Source: SNL Financial Report; 2016 Number of Workers' Comp Writers - By State; produced 06/16/17
 
New carriers entering the Indiana workers compensation market in recent years also indicates a competitive market in the state: 
    • 2017: 11
    • 2016: 11
    • 2015:  2
    • 2014:  9
    • 2013:  4
    • 2012: 11
    • 2011: 12
    • 2010: 10
    • 2009: 17
    • 2008: 11
    • 2007: 18
    • 2006:   4
    • 2005:   6
    • 2004:   3
 
More Information
To see how Indiana compares to other states in terms of WC results, go to the State Comparisons document.

Related Files

The material in this document has been prepared and shared for informational purposes only and should not be relied upon as legal advice on any particular situation.