A Century of Workers’ Comp Data: Here’s What the NCCI Has Learned Along the Way
From its inception in 1923, the National Council on Compensation Insurance (NCCI) has provided a wealth of data and information on the workers’ comp space.
Now, as NCCI celebrates its 100th year, it looks to note the changes and advancements the workers’ comp system encountered throughout the past century. However, the trends and challenges that have taken center stage since 1923 remain, in some ways, timeless.
“While the challenges currently facing the WC system may seem unique, the themes are quite reminiscent of historical challenges the industry has faced — inflation, changing benefit levels, data availability and catastrophic events,” according to an NCCI-published piece entitled “100 Years of Ratemaking.”
The report discussed the various changes the industry has experienced and how aspects of ratemaking — data collection, exposure bases and cost drivers — have been altered as a result.
Notable Ratemaking Changes
Because data is such a foundational component of ratemaking, it’s important to note how the collection and availability of data changed throughout the last century.
When NCCI was founded, a primary initiative was to “collect and compile experience for ratemaking purposes,” according to the report. This entailed looking for a streamlined process for gathering and delivering data, which had proved to be a challenge.
Now, the collection and distribution of data has experienced significant advancements, but there is still a delay in the availability of said data. This is due to “necessary validation efforts to ensure data is appropriate for ratemaking purposes,” per the report. However, the use of recent technological advancements is making these processes more efficient.
NCCI also noted the importance of exposure base when it comes to ratemaking, which the workers’ comp industry has used to determine payroll. Exposure base can be determined, and otherwise influenced, by an “inflationary environment.” This was the case in the mid-1970s, when employees’ earnings exceeded the weekly exposure base limit.
Now, this trend remains especially pertinent as there have been obvious shifts in employment levels across several sectors and industries.
What’s Driven Costs?
Cost drivers have stood the test of time for the workers’ comp industry.
Medical costs remain a top trigger, which is similar to the trend observed in the 1970s and ’80s. The increasing medical costs led to rate level increases, which was evident in the fact that 38 of 43 NCCI states approved rate level increases in 1985.
Coupled with inflation, the ’80s and ’90s experienced a period of compensability and benefit levels reform, and many states turned to medical fee schedules as a cost-containment solution.
Responding to the Market
Challenges in ratemaking produced by the residual market have not been scarce in the workers’ comp industry.
NCCI established the Workers Compensation Insurance Plan to provide coverage for risks that were deemed uninsurable. The plan’s market share would experience changes that were dependent on the residual market at that time.
The market share increased substantially in the mid-’80s, from 5.5% to 16.2%. In response, the industry worked to depopulate the market, which resulted in the Assigned Risk Adjustment Program and the elimination of premium discounts for policies written within the market.
NCCI noted the success of these programs, as today’s residual market share stands at 6%.
Utilizing the Past to Benefit the Present
Throughout the last century, procedures surrounding ratemaking started to see substantial changes, beginning in the 1990s. This change stemmed from the workers’ comp industry “recognizing the widely varying experience, wage levels, development patterns trends and law-evaluation methodologies that existed across states,” per the report.
Ensuring that ratemaking considerations meet state-specific needs still remains a critical objective for the industry, which has been on its radar — and mentioned — since as early as 1919. &