Gov. Healey Says Rejection Will Save Mass. Businesses Nearly $80 Million
BOSTON, MA — The state’s Division of Insurance (DOI) has rejected a proposed 7.1% statewide average increase in workers’ compensation insurance rates requested by the Workers’ Compensation Rating and Inspection Bureau of Massachusetts (WCRIBMA) for July 1, 2025. The ruling in Docket No. R2024-01, dated May 15, 2025, was based on the Commissioner’s finding that the WCRIBMA provided insufficient evidence to support its proposed methodologies, particularly for loss development and underwriting profits.
The rejection will save Massachusetts businesses nearly $80 million, according to a press release from the Healey-Driscoll Administration. This follows a 14.6% decrease in workers’ compensation rates approved in 2024, which saved employers an estimated $87 million.
Governor Maura Healey supported the Decision, stating, “With today’s action, we are saying no to any increased workers’ compensation rates for our companies. We are doing all we can to reduce business costs.” Lieutenant Governor Kim Driscoll expressed similar support, highlighting the administration’s focus on helping businesses succeed.
The Filing and Procedural History
The WCRIBMA, representing its member insurers, submitted its general rate revision proposal on November 15, 2024, targeting a July 1, 2025, effective date. Insurance Commissioner Michael T. Caljouw appointed Jean F. Farrington, Esq., and Matthew A. Taylor, Esq., to oversee the matter.
After a public comment hearing and prehearing conference in January 2025, the proceedings included cross-examinations of witnesses from the WCRIBMA, the Attorney General’s Office (AGO), and the State Rating Bureau (SRB) within the Division of Insurance. Both the AGO and SRB submitted advisory filings challenging several aspects of the WCRIBMA’s proposal.
Statutory Framework: A High Bar for Rate Approval
The basis for the Commissioner’s review is Massachusetts General Laws, Chapter 152, §53A. This law requires that workers’ compensation rates must not be “excessive, inadequate, or unfairly discriminatory” and must “fall within a range of reasonableness”. The responsibility to prove this falls on the filer – the WCRIBMA – to show that its proposed rates meet these statutory standards.
The Supreme Judicial Court has upheld the Commissioner’s authority to review each element of a rate filing and reject proposed rates if any component fails to meet the standard. The Commissioner isn’t required to approve elements that could result in even slightly excessive rates. The main question for the DOI was whether the WCRIBMA’s filing provided a reasonable basis, in terms of information, methods, and analysis, to determine future rates.
Main Dispute: Loss Development Methodology
A major disagreement focused on the Loss Development Factor (LDF), which estimates the ultimate cost of claims started in a specific policy year. The WCRIBMA proposed to calculate indemnity LDFs for paid losses by averaging two years of insurer-reported losses (Policy Years 2021 and 2022), while using a five-year average for paid-plus-case LDFs. This approach continued a method rejected by the Commissioner in the 2024 rate decision.
The WCRIBMA argued that a shorter experience period for paid losses would better reflect what it called an “era of rapidly and systematically changing economic conditions” in 2021 and 2022. They suggested that responsiveness should be prioritized to capture these changes quickly.
The SRB and the AGO argued that this two-year average for paid losses would likely produce excessive and less stable rates. They recommended continuing the methodology approved in 2024, which uses a five-year average for both paid and paid-plus-case LDFs. The SRB’s witness noted that a five-year average for paid losses creates an estimate closer to that for paid-plus-case losses, suggesting greater consistency.
The DOI agreed with the SRB and AGO, finding the WCRIBMA’s arguments weak. The ruling noted that a five-year experience period offers a more robust dataset to observe variations and patterns. “A paid loss LDF that averages only two data points… shows only a variance between two years… insufficient to derive a trend,” the ruling stated.
The Commissioner found it illogical to base the LDF on two years of data (2021 and 2022) that might reflect recovery from the unusual workplace conditions of the COVID-19 pandemic, rather than a stable, predictive trend. The DOI noted that historical data, including the pandemic years, is part of the record and shouldn’t be selectively ignored. As a result, the DOI found that the WCRIBMA failed to offer sufficient evidence that its two-year method for paid loss LDFs was better than the previously approved five-year method. This same logic was applied to the loss trend factor, with the DOI stating that a five-year experience period should be used.
Underwriting Profit Provision: A Problematic Approach to Fair Return
Another key issue was the Underwriting Profit Provision (UPP), designed to give insurers a fair and reasonable rate of return. The WCRIBMA again proposed to replace the established standard methodology with a “premium weighting” approach within its Internal Rate of Return (IRR) model. This method gives more weight to companies based on the amount of workers’ compensation premium they write in Massachusetts, excluding those that don’t write such premiums in the state.
The WCRIBMA claimed its premium weighting would be more accurate and representative for Massachusetts insurers, arguing the standard model’s sample portfolio was “unacceptably unrepresentative”. They cited the Supreme Court case Federal Power Commission v. Hope Natural Gas to support their profit provision, noting that “the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks”.
The DOI, SRB, and AGO found this reasoning problematic. The ruling indicated that the premium weighting method fails the Hope test precisely because it doesn’t provide the necessary comparison to other investments with similar risks. “The standard method would compare the return on investing in the Massachusetts workers’ compensation industry to the return on investing in the national property casualty business,” the ruling explained. By limiting its analysis to companies already invested in the Massachusetts workers’ compensation market, the WCRIBMA’s model effectively compares their expected returns only to their own, failing to ask if the return is comparable to similar alternatives.
Additionally, the DOI found that the WCRIBMA failed to demonstrate any significant difference in risk between Massachusetts-specific workers’ compensation writers and the broader property and casualty industry. The claim that the premium-weighted sample was more “representative” was considered insufficient without explaining what risks make the broader industry different.
The DOI’s ruling pointed out as a flaw in the WCRIBMA’s model that the “per company premium” parameter rests largely within the discretion of the regulated entities”. Thus, events unrelated to risk, such as market entry, exit, or mergers, could change the model’s output even if actual investment assets and total premium written remained identical. Such a methodology might pressure companies to change their behavior and address the methodology itself rather than the actual risks.
The DOI determined that the WCRIBMA did not meet its requirement to show that its proposed UPP calculation, using premium weighting, would result in rates that are not inadequate, excessive, or unfairly discriminatory. “The methodology fails to include the necessary comparison to returns on other investments of similar risks described in Hope,” the ruling confirmed.
Other Disputed Issues
- Escalation Factor: The WCRIBMA proposed an escalation factor of 1.044 to adjust indemnity paid losses for pre-1986 claims subject to annual cost-of-living adjustments. With fewer than 50 such claims remaining open, the SRB and AGO questioned the reliability of the factor, which appeared to be based on an outdated 2003 simulation model that hadn’t been run for years or adjusted for current reliability. The DOI found the proposed factor unsupported, noting that escalation factors typically decrease over time and that the proposed factor did not reflect this or explain why values for 2022-2024 were the highest in 15 years. The WCRIBMA was asked to provide a thorough analysis of these claims in any future filing using an escalation factor.
- F-Classes: These are classifications for employees covered under the U.S. Longshore and Harbor Workers Compensation Act (USL&HW). Due to the unavailability of countrywide F-class data from the National Council on Compensation Insurance (NCCI) previously used, the WCRIBMA this year weighted only Massachusetts experience and current rate relativities. The SRB expressed concern that these heavily weighted current rates limited responsiveness to countrywide changes. While acknowledging the data challenge, the DOI asked the WCRIBMA to explore all available options to obtain broader data on F-class experience in other states for future filings to improve accuracy.
- Future Filing Dates: The AGO proposed that the Commissioner order the WCRIBMA to make another rate filing in November 2025 for rates effective May 15, 2026, citing concerns that rates approved for one year might become excessive in a second year due to downward trends. The DOI heard no strong argument supporting this proposal and declined to order an earlier filing or change the traditional July 1 effective date cycle.
Cost Containment Measures Deemed Sufficient
One area where the WCRIBMA met the DOI’s requirements was in showing acceptable cost control programs by its member companies, as required by M.G.L. c. 152 §53A(13). The filing included surveys from the ten largest NAIC insurer groups writing workers’ compensation in Massachusetts, detailing efforts in claims management, premium collection, and expense control.
Insurers reported successfully maintaining and improving technologies adopted during the COVID-19 pandemic, such as virtual communications, telemedicine, and hybrid audit processes, which have improved efficiency and saved costs. The DOI concluded that this section of the filing was sufficient to support a finding that insurer cost control programs are effective.
Conclusion: Rates Remain Unchanged
In the end, the Division of Insurance rejected the WCRIBMA’s filing for a 7.1% rate increase. The ruling noted that the WCRIBMA failed its requirement to provide enough information for the Commissioner to determine that the proposed rates were not excessive, inadequate, or discriminatory, and fell within a range of reasonableness.
“Any reasonable person would recognize that the multi-year effect of the pandemic on loss data could not be captured in any possible two-year experience window. It is therefore illogical to continue using only two years of loss data for developing indemnity LDFs,” the officials wrote. Regarding underwriting profits, the premium weighting method was found to fail key tests of comparative risk outlined in the Hope decision.
While rejecting the increase, the DOI also determined that no party presented convincing evidence that the current rates were excessive. Therefore, the Commissioner chose not to order a specific decrease under M.G.L. c. 152, §53A(8), meaning the rates established by the Decision on 2024 rates will remain in effect.
Insurance Commissioner Michael Caljouw praised the State Rating Bureau’s work, stating, “The Commonwealth is delivering good news for employers struggling with rising costs”.
For More Information
Readers can download the complete text of the Division of Insurance’s Decision by clicking here or viewing it below:
