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Some Connecticut employers will be hit with the largest average rate hikes in more than a decade for workers' compensation insurance next year, including increases potentially as high as 31 percent.

The hikes, officials say, are being driven by rising claim and medical costs to treat injured workers, aided in part by an aging Connecticut workforce.

The rate hikes, which were proposed by the National Council on Compensation Insurance and approved by state insurance regulators, include an average 5.8 percent increase for policies sold in the normal or voluntary market.

Meanwhile, rates for employers in the assigned risk pool, which is meant for new or small companies in hazardous industries, will increase an average of 7 percent.

Workers' compensation covers medical care and rehabilitation costs for workers injured on the job. It also compensates workers for lost wages due to injury.

Rate changes, which go into effect Jan. 1, will vary by industry because there are about 600 rate classifications for different kinds of businesses. As result, some Connecticut employers will actually see their rates decline, potentially as much 20 percent, while others may see rates increase as much as 31 percent.

Hospitals, for example, will likely see an average 26 percent rate hike for some of its employees, not including doctors. Hardware manufacturers will see an average 5 percent increase while fast-foot restaurants will see rate hikes averaging 10 percent.

Retail department stores, on the other hand, will likely see their average rates drop about 14 percent.

Local trucking companies, engineering firms, and airplane manufacturers will see their rates decline on average 2 percent, 17 percent, and 14 percent respectively.

The increased expenses will hit employers at a time when businesses in Connecticut are already grappling with rising health insurance costs and hikes to unemployment insurance taxes, along with headwinds from a slow recovering state and national economy.

"The severity of the rate increases is surprising," said Kia Murrell, a lobbyist for the Connecticut Business & Industry Association. "We don't want rates growing so out of control that employers don't carry insurance anymore. We are not near that point yet, but if things aren't brought under control, anything is possible."

The NCCI, which is based in Florida and owned by its member insurers, prepares workers compensation insurance rate recommendations for more than 40 states, but the state Insurance Department is the final arbiter, and must approve or reject the rates.

NCCI proposed and gained approval for the average 5.8 percent increase for the regular, voluntary market. Those are "pure premium" rates that don't include costs associated with administration, premium taxes, and other expenses from insurers.

NCCI originally proposed a 12.7 average increase for the assigned risk pool rates, but regulators reduced it to 7 percent, concluding that the request was excessive. That number represents the full rate charged by insurers.

Final premiums charged to employers are a combination of the loss costs, carrier multipliers and discretionary pricing mechanisms designed to reflect employers' safety records.

The Hartford, Liberty Mutual, Travelers, Chartis and Zurich are the largest providers of workers comp insurance in Connecticut, owning 62 percent of the market.

Unlike health insurance rates, which have been on a prolonged and steady increase, workers compensation rates in Connecticut have been relatively stable over the past decade. Rates in the regular market, for example, fell, on average, nearly 1 percent from 2002 to 2010. Rates in the assigned risk pool increased about 1.5 percent during that time period.

But this year's uptick is more dramatic than in previous years, especially in the voluntary market. The average 5.8 percent increase is the highest rate hike in at least 10 years. It's also the second highest average rate increase experienced by any state in the country, behind only Florida's 8.3 percent hike.

Laura Backus Hall, the state relations executive with the NCCI, said although claim frequency has been on a decline in the state, the rate of decline has slowed considerably. At the same time, the average medical and claims costs in Connecticut are growing faster than wages.

Connecticut also has high permanent partial disability costs relative to surrounding states.

"Rates are high because we have one of the older workforces in America," said CBIA's Murrell. One factor is that it takes longer for older workers to recover from an injury. Their wage replacement costs also are higher because they tend to be paid more.

Unlike health insurance costs, which traditionally go up each year, workers comp rates vary from industry to industry depending on the work performed. As result some employers will see rate decreases, even though the statewide average rates are climbing. Other employers will see much larger increases than the statewide average.

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