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

Risk Management

The Profession

As a professor of business, Jack Hampton knows firsthand the positive impact education has on risk managers as they tackle growing risks.
By: | April 9, 2018 • 4 min read

R&I: Who is your mentor and why?

Ellen Thrower, president (retired), The College of Insurance, introduced me to the importance of insurance as a component of risk management. Further, she encouraged me to explore strategic and operational risk as foundation topics shaping the role of the modern risk manager.

Chris Mandel, former president of RIMS and Risk Manager of the Year, introduced me to the emerging area of enterprise risk management. He helped me recognize the need to align hazard, strategic, operational and financial risk into a single framework. He gave me the perspective of ERM in a high-tech environment, using USAA as a model program that later won an excellence award for innovation.

Bob Morrell, founder and former CEO of Riskonnect, showed me how technology could be applied to solving serious risk management and governance problems. He created a platform that made some of my ideas practical and extended them into a highly-successful enterprise that served risk and governance management needs of major corporations.

R&I: How did you come to work in this industry?

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From a background in corporate finance and commercial banking, I accepted the position of provost of The College of Insurance. Recognizing my limited prior knowledge in the field, I became a student of insurance and risk management leading to authorship of books on hazard and financial risk. This led to industry consulting, as well as to the development of graduate-level courses and concentrations in MBA programs.

R&I: What was your first job?

The provost position was the first job I had in the industry, after serving as dean of the Seton Hall University School of Business and founding The Princeton Consulting Group. Earlier positions were in business development with Marine Transport Lines, consulting in commercial banking and college professorships.

R&I: What have you accomplished that you are proudest of?

Creating a risk management concentration in the MBA program at Saint Peter’s, co-founding the Russian Risk Management Society (RUSRISK), and writing “Fundamentals of Enterprise Risk Management” and the “AMA Handbook of Financial Risk Management.”

A few years ago, I expanded into risk management in higher education. From 2017 into 2018, Rowman and Littlefield published my four books that address risks facing colleges and universities, professors, students and parents.

Jack Hampton, Professor of Business, St. Peter’s University

R&I: What is your favorite book or movie?

The Godfather. I see it as a story of managing risk, even as the behavior of its leading characters create risk for others.

R&I: What is your favorite drink?

Jameson’s Irish whiskey. Mixed with a little ice, it is a serious rival for Johnny Walker Gold scotch and Jack Daniel’s Tennessee whiskey.

R&I: What is the most unusual/interesting place you have ever visited?

Mount Etna, Taormina, and Agrigento, Sicily. I actually supervised an MBA program in Siracusa and learned about risk from a new perspective.

R&I: What is the riskiest activity you ever engaged in?

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Army Airborne training and jumping out of an airplane. Fortunately, I never had to do it in combat even though I served in Vietnam.

R&I: If the world has a modern hero, who is it and why?

George C. Marshall, one of the most decorated military leaders in American history, architect of the economic recovery program for Europe after World War II, and recipient of the 1953 Nobel Peace Prize. For Marshall, it was not just about winning the war. It was also about winning the peace.

R&I: What about this work do you find the most fulfilling or rewarding?

Sharing lessons with colleagues and students by writing, publishing and teaching. A professor with a knowledge of risk management does not only share lessons. The professor is also a student when MBA candidates talk about the risks they manage every day.

R&I: What is the risk management community doing right?

Sensitizing for-profit, nonprofit and governmental agencies to the exposures and complexities facing their organizations. Sometimes we focus too much on strategies that sound good but do not withstand closer examination. Risk managers help organizations make better decisions.

R&I: What could the risk management community be doing a better job of?

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Developing executive training programs to help risk managers assume C-suite positions in organizations. Insurance may be a good place to start but so is an MBA degree. The Risk and Insurance Management Society recognizes the importance of a wide range of risk knowledge. Colleges and universities need to catch up with RIMS.

R&I: What emerging commercial risk most concerns you?

Cyber risk and its impact on hazard, operational and financial strategies. A terrorist can take down a building. A cyber-criminal can take down much more.

R&I: What does your family think you do?

My family members think I’m a professor. They do not seem to be too interested in my views on risk management.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]