Well, are workers comp rates softening, hardening, or just right?

According to a study released at this year's annual RIMS conference (held in Honolulu...), the market is softening. I'm not sure I buy that, and here's why.

There are lots of moving pieces here that all have an impact on insurance rates: prior year losses; medical cost trend rates; expectations of losses for the coming policy year; claims volume projections; claim cost projections; equity market investment returns; interest rates; the amount of free capital in the market; etc.

So, one would need a supercomputer or really good ouija board to consider all these factors. Lacking either, I'll use the trusty educated guess to prognosticate on the future of rates...

Workers comp rates are down about 3% over prior year renewals. This is due to more favorable investment returns (equity markets are up as are interest rates); a significant improvement in loss ratios in California (home to about 17% of the nation's WC exposure); an expectation that reforms in Texas will significantly reduce costs in that key state; concern about potential claims for property and liability from past and future hurricanes (soaking up capital that could be used to write WC) and perhaps most significant, the continuing decline in claims frequency.

All these factors make for a relatively rosy outlook for comp. In fact, coupling the legislative and regulatory changes with the decline in claims frequency, one could argue that rates should be substantially lower than they are today.