Workers’ comp insurance rates, which have been falling steadily since early 2015, are getting an additional downward push due to the new federal tax law.

The National Council on Compensation Insurance has made filings in five states — Arizona, Florida, Idaho, Illinois and Iowa — for rate reductions of varying degrees.

The Idaho Department of Insurance has approved the 3.4% rate decrease that NCCI proposed. It will take effect May 31.

In Florida, NCCI submitted a filing to reduce rates by 1.8% for all new and renewal policies, effective June 1. The filing is under review, and a decision is expected in the next few weeks, according to the Florida Office of Insurance Regulation.

Other rate changes proposed by NCCI are a 4.7% decrease in Arizona, a 1.9% reduction in Iowa and a 3.3% drop in Illinois. An NCCI spokesman said all the filings were the result of the federal Tax Cuts and Jobs Act that President Donald Trump signed into law on Dec. 22.

Bill Herrle, Florida executive director for the National Federation of Independent Business, a small-business advocacy group, called the proposed workers’ comp rate reduction “great news.”

“It is evidence that the federal tax cut package has been good for the business community,” Herrle said.

Herrle said the Florida workers’ comp system still suffers from underlying problems, including the impacts of state Supreme Court decisions in 2016 regarding attorney fees and temporary benefit caps. But a surge in business activity in the state has helped to spread workers’ comp risk, leading to lower rates, he said.

The proposed 1.8% rate reduction would follow rate decreases that Florida Insurance Commissioner David Altmaier approved in November. An overall rate level decrease of 9.5% and a premium level decrease of 9.8% took effect on Jan. 1.

In announcing Idaho’s 3.4% rate decrease, which follows a 5.8% decrease that took effect Jan. 1, Insurance Department Director Dean Cameron noted that a mid-year workers’ comp filing is unusual. But the Tax Cuts and Jobs Act, which reduced the corporate tax rate, from 35% to 21%, prompted NCCI to make the “law only” filing.

The tax cut impacts the profit and contingency provision of the workers’ comp rate. NCCI said provisions of the Tax Act impact the tax treatment of underwriting income, the post-tax return on investment and the post-tax cost of debt capital.

NCCI made the mid-year filing in states where it files full rates on behalf of insurance companies. In loss cost states, in contrast, the carrier rather than the rating bureau decides what profit and contingency provisions to include in the loss cost multiplier.

In California, the Workers’ Compensation Insurance Rating Bureau is recommending a 7.2% reduction in the advisory pure premium rate, beginning July 1. The proposed reduction is based on declining indemnity and medical costs.

WCIRB’s advisory pure premium filings do not factor in federal income taxes, insurer profit needs or insurer expenses other than loss adjustment expenses, said Dave Bellusci, WCIRB executive vice president and chief actuary. 

“These considerations are reflected in individual insurer rate filings made with the CDI (California Department of Insurance),” Bellusci said.

In most states, rate changes provided by rating bureaus are advisory and don’t necessarily correspond to what insurers ultimately charge their policyholders.

But workers’ comp rates in the national marketplace have been falling steadily since the first quarter of 2015, according to the Council of Insurance Agents and Brokers. Profitability of the workers’ comp line has spurred intense competition, which has been credited for the ongoing rate decreases.

CIAB reported a 2% decrease in workers’ comp rates for the fourth quarter of 2017, following four quarters of decreases in the 1.9% to 2.9% range.

In its quarterly Market Barometer report released this month, MarketScout noted that workers’ comp rates were down again in the first quarter, by 2%.