Industry Update

Workers’ Comp Line in Robust Health

All signs point to positive trends in the workers’ comp market, which is good news for policyholders as well as insurers.
By: | June 1, 2017 • 3 min read

Recent data from the National Council on Compensation Insurance shows ongoing positive results for workers’ compensation insurers and favorable conditions for policyholders purchasing the coverage.

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The most recent combined ratio for workers’ comp insurers reveals they are earning underwriting profits, lost-time claim frequency continues its long-term decline, and wage expansion is supporting premium volume growth, among other favorable conditions, according to NCCI’s “2017 State of the Line” information presented during the research and rating organization’s Annual Issues Symposium.

“We are kind of on a roll, it’s a good story,” NCCI President and CEO Bill Donnell told the symposium, held May 17-19 in Orlando, Fla.

Boca Raton, Fla.-based NCCI provides rating services for 38 states.

Kathy Antonello, chief actuary, NCCI

Insurers are not the only ones benefiting, according to information NCCI collected from The Council of Insurance Agents & Brokers.

By 2016’s fourth quarter, 62 percent of agents responding to a survey reported they observed a decrease in workers’ comp premium rates for policy renewals. That stands in contrast to the 74 percent who observed premium rate increases in 2013.

NCCI also saw insurers provide policyholders “deeper discounts” during 2016,  Kathy Antonello, NCCI’s chief actuary, told the Annual Issues Symposium.

An even more recent commercial insurance index report, however, showed that May, 2017 marked the first time this year that renewal premiums increased for workers’ comp policies. Pricing for workers’ comp coverage rose 0.58 percent in May, in contrast to falling 0.19 percent the prior month, according to the May IVANS Index report released June 1, 2017 by Applied Systems.

Private insurers combined ratio, meanwhile, reached 94 percent for 2016. With the 2015 combined ratio also at 94 percent, 2016 marked the second consecutive year that the workers’ comp insurance industry recorded a six-point underwriting gain.

“We haven’t seen consecutive combined ratios at this level at least since 1975,” Antonello said.

The combined ratio is “even more remarkable,” because a single carrier’s experience added four points to the industrywide ratio. Antonello did not name the insurer, but she emphasized that the combined ratio would have stood at 90 percent for 2016 had it not been for that one insurer’s experience.

The industry’s loss ratio, which compares net incurred losses to net earned premium and is a component of the combined ratio, dropped to 53 percent for 2016 after reaching 54 percent the prior year.

“You have to go back to the mid-1990s to find ratios anywhere near the level we are seeing now,” Antonello said.

Insurer operating gains were also “well above average” for 2015 and 2016, Antonello said.

“We haven’t seen consecutive combined ratios at this level at least since 1975.” — Kathy Antonello, chief actuary, NCCI

Although insurers have been on “a good ride” during the past four years, the industry can’t be over confident, Donnell told the symposium.

“We work in a cyclical industry and history does repeat itself,” he cautioned.

Recent conditions, however, have been mostly favorable.

Private workers’ comp insurers’ net written premium growth was stagnant for 2016, hitting $40.1 billion for the year, compared to a total of $39.7 billion for 2015. When state fund net written premium results are included for 2016, the total amount reached $45.5 billion.

In contrast to 2016, private insurers wrote $37.8 billion in net written premium during 2005, a peak year prior to the Great Recession.  The total for 2005 stood at $47.8 billion when including state fund results.

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While insurers’ net written premium growth stagnated during 2016, the U.S. economy added nearly 16 million jobs between the depth of the Great Recession in 2010 and 2016. The related payroll expansion during those years helped add $10 billion in net written growth, contributing to the $40.1 billion insurers reported through 2016.

Other trends reported by NCCI include:

  • Average lost-time claim frequency across states where NCCI recommends rates declined by 4 percent in 2016.
  • Workers’ compensation was the only property casualty line not experiencing 2016 combined ratio deterioration.
  • On average, state approved premium levels decreased 6.7 percent.
  • For 2015, physician costs equaled 40 percent of total workers’ comp claim medical expenses, while prescription drugs amounted to 11 percent of the expenses.
  • Repackaged drugs now represent a small portion of overall drug spend due to states implementing regulations.
Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]