Trend of Rate Reductions Ends with Increases for 2020

July 29, 2019

MCIT aggregate contribution rates bar chart 2016-2020During the year, the MCIT Board makes a number of decisions that affect the financial landscape of the membership. None has a more dramatic impact on the bottom line for members’ annual budgets as the contribution rates.  Rates, when applied to an individual member’s unique exposures, translate to the cost of coverage for that member for the coming year.

During the July MCIT Board meeting, Mark Doepke and Scott Anderson of Actuarial Advisors presented their report regarding recommendations for 2020 property, casualty (liability) and workers’ compensation rates. The report clearly signaled that the multiyear trend of rate reductions was at an end. In setting rates, the MCIT board is committed to ensuring that rates reflect potential losses.

Jail Death Claims Influence P/C Rate Change

The growth in MCIT’s exposure base in the property/casualty division (e.g., additional vehicles, building improvements/remodeling, increased stress on jails because of mental health and chemical dependency) brings with it the likelihood of more claims. Likewise, the cost of paying, settling and defending claims continues to increase—vehicles cost more, attorney fees edge upward, plaintiffs seek more in damages and medical expenses increase.

Although costs associated with the defense of Driver’s Privacy Protection Act (DPPA) cases have run their course, they have been replaced by claims involving jail suicides, inmate deaths not attributed to suicide and allegations of failing to provide adequate medical treatment to inmates. These claims often result in expensive litigation.

In fact, Doepke noted that the average public employee liability claim severity has almost doubled during the past four years, and the frequency continues to increase. Even with a decrease in unallocated loss adjustment expenses, such as software, personnel, contracted services and capital costs, the increase in reinsurance costs and claim expenses led the board to decide an aggregate rate increase in property/casualty rates of 7.4 percent in 2020 is warranted.

The results of Phase II of MCIT’s three-year property appraisal project is included in the cost of coverage in 2020. Contributions for 2020 will reflect revised building values resulting from Phase II of MCIT’s three-year property appraisal project for members generally located in the middle third of the state.

Contributions also reflect a 3.3 percent increase applied to building values and 3 percent applied to building contents and property in the open values for members’ covered property, a result of an annual study designed to ensure that schedule values keep pace with the cost to replace a building, its contents or property in the open in the event of a covered loss.

Jump in Mod Factors Increase WC Rates

Although not as significant, aggregate workers’ compensation rates will also increase in 2020. A 3.7 percent raise was determined appropriate by the board.

One factor influencing the need to increase the cost of coverage is a rise in reinsurance costs, driven largely by the uptick in MCIT’s experience modification factor and the cost of claims.

New to the mix of claims experience is post-traumatic stress disorder (PTSD) claims. Since passage of the law in 2013 that makes PTSD a compensable injury, the frequency and severity of these claims has gradually increased. In 2018, PTSD claims comprised 1.5 percent of all workers’ compensation claims but was responsible for approximately 7 percent of the division’s reserves.

Rates for Other Coverages Remain Unchanged

On a positive note, rates for other coverages remain unchanged:

  • Old Republic Surety has not increased the rate for its layer of employee dishonesty and faithful performance of duty bond coverage. Concurrently, MCIT has not raised rates for its layer of this coverage.
  • Hartford Steam Boiler rates for equipment breakdown coverage remain unchanged for 2020.
  • Canine coverage rates remain steady.

Renewal Notices Mailed Later This Month

MCIT will mail renewal notices to members no later than Aug. 21 as required by the MCIT Bylaws. Members that have questions regarding their 2020 contribution should contact MCIT Underwriting Specialist Nick Anderson toll-free at 1.866.547.6516, ext. 6417 or