Maryland, once one of the most expensive states in the nation for businesses to buy workers' compensation insurance, has become one of the cheapest, thanks in part to a weak economy, two studies of the state's business and insurance climate have found.
In a private study of insurance costs for manufacturers -- one of the most important costs that drive business location decisions -- one research group found that while workers' compensation premiums here have nearly doubled in the last 10 years, employers in other states have seen much steeper increases.
As a result, Maryland has moved from being the 1/4 12th-most-expensive state a decade ago to the fourth cheapest today, according to Actuarial & Technical Solutions Inc. of Bohemia, N.Y.
While individual companies' rates vary according to their past and their specific industry, manufacturers in Maryland pay an average of $3.45 per $100 of payroll for workers' compensation insurance today, the actuarial group found, about a third below this year's $5.39 national average.
And an analysis by the insurance industry predicts that continuing weakness in Maryland's economy -- along with 7-year-old legislative reforms that limit payments to doctors and some injured workers -- will give the state even more of a comparative advantage in workers' compensation costs through the end of the decade.
"We're not saying we want a recession to have workers' compensation costs low," said William Kahley, chief of economic research for the National Council on Compensation Insurance, an industry think tank.
But Marylanders may as well realize there is at least one silver lining to the recessionary cloud hovering over the state, he said.
"The labor market is weak, and that bodes well for workers' compensation insurance prices," he said.
The slow local economy will reduce costs here even though bad economic times can sometimes conspire to raise workers' compensation costs, he said.
Companies that go bankrupt, for example, often find an unusually high number of workers report injuries, the NCCI has found.
And some injured workers who see a poor job market around them tend to collect compensation longer than those who think it will be easy to find another job, Mr. Kahley said.
But an unusually deep recession in Maryland's blue-collar sectors combined with several years of lower-than-average general wage inflation to rein in workers' compensation losses in the state, the NCCI found.
"Employment prospects in the risky manufacturing and mining industries are quite bleak," the NCCI's report on Maryland said. And wages here have risen by only about 3.1 percent a year since 1989, slower than the national average annual increase of 4.3 percent.
Price competition hot
Accelerating the savings for businesses here: Lower insurance costs have attracted more insurance companies into the state to compete for companies' business, which further lowered prices to businesses, Mr. Kahley said.
Price competition is so hot here that insurers have driven their profits down to an average return of only 8.8 percent on net worth in recent years, less than half the return the companies were earning in the late 1980s, the NCCI found.
Tom Danella, manager of the Maryland branch of New Jersey-based Selective Insurance Co., said he and his fellow insurers feel an 8.8 percent return is just fine because they know their costs here will be limited.
But, he said, the weak economy isn't the main reason for the improvement in Maryland's competitiveness.
Instead, insurers like covering Maryland businesses because, in 1987, the state legislature capped the amount insurers have to pay workers with comparatively minor injuries, as well as doctors treating injured workers, Mr. Danella said.
"The fee schedule is extremely important," he said.
Businesses in other states without payment caps, such as nearby Delaware and New Jersey, pay much higher rates. But the insurers don't believe they make any more money, and so don't like doing business there, he said.
"A lot of insurance companies have pulled out of Delaware," Mr. Danella said. "But Maryland is pretty darn good."
Not everyone agrees that the system for paying injured workers is working well, however.
Susan Yochelson, director of a dislocated-worker assistance program for the state's AFL-CIO, said one reason costs are low is that injured workers sometimes have a hard time getting paid. "They really get the runaround," she said. "It's awful."
And Marcia Burgdorff, president of the Guilford Group, a Baltimore-based workers' compensation consulting firm, said the reports were not cause for celebration.
"The numbers in Maryland may look good in certain lights, but I don't think that's the reality," Ms. Burgdorff said.
'Whole lot more we can do'
Just seven months ago, she noted, the NCCI put out another report showing that because of bureaucratic snarls in Maryland's workers' compensation system, half the injured workers waited more than 50 days for their first check -- far longer than workers in other states waited, and longer than Maryland law allows.
In addition, the report found that more than 90 percent of the injured workers retained attorneys to help them collect their benefits -- which tended to increase costs for all sides.
"There's a whole lot more we could do" to cut costs further, Ms. Burgdorff said.
But employers say that while they feel workers' compensation costs are generally too high, Maryland has become one of the most competitive states.
Cost of workers' compensation insurance is one of the most important factors companies use to decide where to locate jobs, said Hank Rohland, risk manager for the Lebanon Chemical Corp., which operates a plant in South Baltimore.
Mr. Rohland, who oversees insurance for his Lebanon, Pa.-based company's fertilizer plants in eight states, said he's concluded, "Maryland is actually a good state."
Mr. Rohland said he's long been puzzled by the widely varying rates his company pays in different states.
In New York, for example, the company pays $12.78 per $100 of payroll for coverage of workers doing the same jobs as the 20 employees in his company's Baltimore plant, where his premium rate is $7.13.
Christopher Costello, vice president of the Maryland Chamber of Commerce, said Maryland should -- and probably will -- become increasingly competitive in the workers' compensation market.
"We have taken something that was a real negative and turned it to a positive," he said.
But, he added, costs "need to come down a great deal more. . . . In Virginia, costs are even lower." Virginia, where manufacturers pay an average of only $2.40 per $100 of payroll for coverage, has the lowest workers' compensation premiums in the nation, according to Actuarial & Technical Solutions.
Mr. Costello is hopeful Maryland will become even more competitive: "We expect to see relative costs go down."