The underlying trend among workers’ compensation premiums in WA is for rises, according to GIO.

This is despite WA WorkCover cutting 1.4% from its average recommended premium rate for next financial year.

Low bond yields and rising claims costs are putting pressure on rates, GIO Chief of Workers’ Compensation Portfolio and Underwriting Jason Allison says.

“High levels of competition have suppressed rate increases but the underlying factors that impact pricing continue to indicate rates are hardening.”

Since 2007, claims costs have generally risen more than the increase in earned premium, according to scheme actuary PricewaterhouseCoopers (PWC).

But insurers’ profitability last year would have been higher had they not discounted the recommended rates, it notes.

The high degree of discounting “is arguably resulting in unsustainably low insurer margins, bringing the risk of future premium spikes”, Mr Allison told insuranceNEWS.com.au.

Net claims costs rose 17% last year, when earned premiums increased only 4%, he says.

It is hard to know when discounting might stop and the market remains concerned about the impact of an end to the resources boom, according to Mr Allison.

The reduction in the premium to 1.668% of wages from 1.691% included a 2.2% decrease due to removal of a one-off adjustment last year, GIO says. Without this, rates would have risen 0.8%.

The drop was driven by wage growth above wage inflation, higher employment and the removal of last year’s adjustment relating to amendments to the WorkCover Act, which removed the age limit on entitlements and broadened the definition of contractors, PWC says.