State ranks well in workers comp losses

LITTLE ROCK – The market for workers’ compensation insurance remains competitive in Arkansas, thanks to efforts by the legislature to hold down rates.

According to the most recent data available from the National Council on Compensation Insurance, Arkansas has some of the lowest rankings for losses. Factors that drive rates include the frequency of claims, medical costs and the price of prescription drugs.

There are two major markets from which employers purchase workers’ comp insurance. One is voluntary and the other is the assigned risk pool, for jobs that are too risky or too expensive for the ordinary market. The top five categories that are covered in the assigned risk pool are in the construction industry.

Earlier this year 185 companies in Arkansas were removed from the assigned risk plan and got coverage in the voluntary market, saving them on average 5.35 percent in premiums.

In 2020 Arkansas had the lowest loss costs in the region, per each $100 of payroll. It was 50 cents per $100, compared to a regional average of 69 cents and a national average of 91 cents. The cost of premiums in Arkansas is stable or declining because of declines in loss costs.

In the early 1990s workers’ comp insurance was about to become too expensive for many employers to afford. Annual rate increases were in the double digits. For example, premiums went up by 15 percent and 18 percent in 1991 and 1992.

The legislature passed Act 796 of 1993, and the effect on the market was clear and significant, according to the Insurance Department’s most recent annual report. Anticipated rate increases in 1993 and 1994 did not occur. It was the first time in 10 years that rates did not go up.

The Insurance Department reached the conclusion that the voluntary market in Arkansas would possibly have disappeared without Act 796, leaving the assigned risk pool as the only market for workers’ comp insurance.

The act created a division within the Insurance Department assigned to investigate fraud, and set financial penalties for fraudulently making workers’ comp claims. According to the Insurance Department report, “before the passage of Act 796 of 1993, there had never been a criminal prosecution in Arkansas for workers’ compensation fraud committed by employees, employers or healthcare providers.”

In 2005 the division’s authority was expanded to investigate all forms of insurance fraud and it was renamed the Criminal Investigation Division of the Insurance Department.

In 2020 the Division got 40 referrals, of which 20 were investigated. One case was referred to local prosecutors, but it was subsequently closed for lack of evidence. Since the Division was created in 1993, it has referred 167 cases for prosecution, resulting in 123 convictions.

In three cases the defendant was acquitted and in all the remaining cases the charges were not filed by prosecutors.

In cases in which there is not sufficient evidence to prosecute, often the threat of prosecution is motivation for the parties to settle out of court, according to the Insurance Department.

The overwhelming majority of cases investigated by the Division are for other forms of insurance fraud. Only 3.5 percent of its cases are investigations of workers’ comp fraud.