Cuts in workers comp insurance rates continue. From California to Florida, premiums continue to fall, driven by a decline in claims frequency and lower costs brought on by reforms and stagnant wages.

The latest announcement came from Florida, where rates have declined 60% from their peak in 2003 (after major reform). Ths Sunshine State is not alone; Pennsylvania is yet another state with rate cuts scheduled for 2008.

There are several factors driving down premiums - claims costs appear to be moderating with medical expense predicted to stay in the single digits. Investment income was looking pretty solid (until recently). Competition in many markets served to force insurers to keep rates down or risk losing big chunks of market share. And the mix of business continues to shift towards lower-risk industries as construction activity tapers off, there are fewer goods in transit, and manufacturing and industrial firms see a decline in purchasing.

So where does it stop?

A better question is what are happening to the underlying drivers. I'd opine that there are two major factors that will lead to a hardening of the market in the near future.

Medical trend in the group world is approaching double digits. Historically the work comp medical trend rate has been somewhat higher than group trend; I see nothing that indicates that has changed.

The investment market has imploded, likely driving down the value of the funds held for reserves and surplus. While most investments are in what used to be thought were 'safe' instruments, it may well be that regulators and rating agencies, newly sensitized to the potential problems with even 'safe' vehicles, will require carriers to take down the value of funds held in reserve.

There's a lot more to this, a whole series of levers and triggers that undoubtedly will impact the industry. But from here, the indicator dials all appear to be pointing to a return to a harder market. And soon.