Hawai'i companies could see a hefty decline in workers' compensation insurance premiums next year as a result of improved work place safety and a decline in claim filings.

State Insurance Commissioner J.P. Schmidt yesterday said he approved an 18.2 percent drop in "loss costs," the biggest expense component used by insurers to calculate premiums. The loss costs cover claims paid by insurers.

The decline for 2006 follows a 3 percent decrease in loss costs this year and a 1.3 percent drop in 2004. Part of the decline resulted from the state working with companies on improving work place safety and increased monitoring, Schmidt said.

Hawai'i employers paid the fourth-highest workers' compensation rates in the nation, according to a study last year by Oregon's Department of Consumer and Business Services. Only California, Alaska and Florida had higher rates, the study found.

The cut is based on a reduction in claims in 2003, the last year for which complete data is available. It was recommended by the National Council on Compensation Insurance which assists the industry in setting rates.

Insurers are under no obligation to use the council's loss costs rate in calculating premiums, though many do, Schmidt said.

Other costs that go into computing premiums can include taxes, profit margins, administrative fees and other expenses.