For years, employers have been enjoying a workers' compensation environment characterized by declining premiums and a marketplace flooded with insurance companies anxious to attract additional workers' comp premium dollars.

That may be changing. No one is anticipating a severe or immediate turnaround in the workers' comp market, but there are indications that the pendulum is starting to swing back toward higher prices. The workers' comp market, many insurance professionals predict, will be characterized by either a leveling off or steadily increasing premiums. They also predict the withdrawal of some specialty writers who entered the market in the first place only because they were convinced profits would be high.

Donald T. DeCarlo, a practicing attorney and the chairman, president and CEO of the American Society of Workers' Comp Professionals, says three factors contributed to the soft workers' comp marketplace characterized by low premium prices. They are: reform laws passed around the United States, a greater emphasis on combating fraud, and the introduction of managed care to the medical component of workers' comp insurance.

While reforms were effective, DeCarlo says, they did not stem the tide in losses or litigation to the extent some had envisioned. He also points out that while managed care has reduced medical claims severity, these savings are being partly offset by an increase in claims frequency. And, he concludes, the "predatory and overzealous" pricing strategies that were adopted by many workers' comp insurers have proved to be flawed as investment income is declining and losses are mounting. Data released by the National Council on Compensation Insurance (NCCI) affirms the changing direction of the workers' compensation marketplace. The NCCI reported a combined ratio of 117 percent for workers' comp insurers from September 1998 to September 1999. This means that for every $1.00 of workers' comp premium generated, the industry paid out $1.17 in losses and expenses. The NCCI also reports that the year-to-date workers' comp combined ratio continues to climb.

"We have been warning for some time of deteriorating market conditions, and these latest numbers only give further weight to our fears," said NCCI president and CEO Bill Schrempf. He adds that "adjustments will be required to restore workers' compensation to a healthy environment."

These "adjustments" are likely to take the form of higher premium rates. But experts say that employers can take other steps to help control workers' comp costs, regardless of the market conditions that may prevail. As an employer, you should carefully consider these questions:

Is your business being placed in the most favorable and least costly workers comp classification?

Is your experience rating being closely monitored to reflect positive changes that may have occurred in your operation's claims history?

Are the reserves reasonable or excessive that your workers comp insurer sets in open cases? This question is particularly critical because reserves play an important role in determining an employer's individual rates.

Is your insurer aggressive in seeking reimbursement from third parties whose actions may have resulted in an on-the-job injury and a subsequent workers comp claim? Likewise, does your insurer aggressively pursue second injury fund benefits to reduce the cost of a compensation claim?

What investigative services will your insurer bring to the table to challenge a workers comp claim that is suspected of being fraudulent?

What types of services or resources will your insurer make available in the areas of loss control and risk management?

Does your workers comp insurer willingly provide periodic claim reports to help you to understand your company's loss trends and to pinpoint safety areas that may raise a red flag?

Are your employees being well served by your insurer through quick claims resolution and prompt payment of benefits to those who qualify?

While you can't control changing workers comp market conditions, you can take proactive steps to exert greater control over the services you get for you premium dollars. Insurance agents and brokers stand ready to help their commercial clients analyze the many issues that affect workers comp coverage, while also helping to identify the insurance that represents the best "fit" for each client's individual needs.