WC Rate Predictions for Remainder of 2014
Huge rate increases or decreases likely won’t be in the offing for 2014, predict industry observers. At least, that should be the case in most states.
As NCCI is wrapping up its rate filing cycle, a plethora of predictive reports have been released by various other organizations — all suggesting more moderate rate changes for 2014. The experts say many jurisdictions are experiencing issues unique to them while a couple of overriding trends and uncertainties are likely to impact the market this year.
NCCI, which typically makes 38 rate loss cost filings each year, has filed 35 to date. Of those, 33 have been approved by state regulators, including 19 increases and 16 decreases.
“It’s much more balanced between decreases and increases this year,” said Peter Burton, NCCI’s senior division executive for state relations. “Two-thirds of the filings in 2012 were for increases.”
Also watching the market closely is Wells Fargo Insurance. In its recently released Insurance Market Outlook, the company projects overall workers’ comp rate hikes for the first three quarters of 2014 followed by moderating in the fourth quarter of “flat to 5 percent increases.” The company predicts higher rate increases in certain states, notably California and New York which are both non-NCCI states.
There could be some continued good news on the combined ratio front this year. Wells Fargo says the higher prices seen over the last several years should drive down the combined ratio. NCCI’s Burton likewise said the Florida-based organization believes there could be some decrease for 2013.
At NCCI’s Annual Issues Symposium last May, company officials said the calendar combined ratio had fallen to 109 in 2012 — a six point decrease from 2011 and the first reduction since 2006.
“Medical cost containment remains the number one issue the industry is focused on,” Burton said. “The examination of fee schedules, trying to control opioid abuse, and physician dispensing of repackaged drugs appeared in many states. Legislatures are looking at ways to harness those costs.”
Rising medical costs as well as increases in lost time indemnity costs are contributing to inadequate reserve levels, Wells Fargo said. It faulted chronic conditions.
“A good percentage of this is driven by the rise in comorbid conditions in the workplace including obesity, smoking, use of opioids and prescription overdoses, although many states have enacted legislation to control prescribing these types of drugs,” the report said.
The continued low interest rate environment remains another concern for workers’ comp insurers. The result is more pressure to obtain better underwriting results.
“To secure the most competitive program possible from a cost and coverage perspective and better position your company in the eyes of the underwriters, one needs to be proactive and consultative in the renewal strategy approach to the market,” Wells Fargo advised. “A detailed understanding of the impact of any loss-control and safety initiatives, coupled with post-loss claims handling initiatives — such as return-to-work programs and wellness programs and their impact on historical and prospective claims experience — must be clearly communicated and discussed in detail with underwriters; e.g. sometimes the past is not indicative of the future. Communicating any other client specific issues that may positively differentiate your risk from others is also a necessity.”
Don’t look for major reform efforts this year, suggests Burton. That was last year’s focus.
“Most comp systems are operating fairly well,” he said. “That’s typical with midterm elections; the heavy lifting doesn’t happen this year.”
Instead, Burton said study groups for future reform work are the focus of many states right now. “There’s a lot of stuff brewing through study groups.”
For example, New Hampshire and Virginia are exploring medical cost containment issues. Montana has looked at restructuring its state fund while Burton said Texas may consider privatizing Texas Mutual, created as the state’s insurer of last resort.
Connecticut lawmakers are considering a new bill that would provide workers’ compensation benefits for first responders who witness traumatic events. A similar bill did not pass in last year’s legislative session.
“A lot of the issues this year are unique to each state,” Burton said. “There is tweaking going on, on parochial issues, more so than any systemwide reform.”
The potential impact of the Affordable Care Act remains a major question for the industry. Another is the uncertainty over whether the government will extend the Terrorism Risk Insurance Act beyond this year.
“Without the federal backstop, insurers will need to more selectively underwrite the exposures to loss with the goal of managing their employee aggregation exposures in primarily urban (but also rural areas) with an above average exposure to terrorism and employee concentrations,” Wells Fargo explained. “This will only result in less capacity being deployed and ultimately less competition among insurers.”
With renewals going out long before the Dec. 31 expiration date, all eyes are on Congress to see if it will extend TRIA.
Loss Cost Filings
NCCI is nearing the end of its current rate filing cycle. Of 35 loss cost filings, 33 have been approved.
The largest increase filed and approved was Missouri at 11.6 percent. The remaining increases were in the single digits and included Hawaii, Virginia, New Mexico, Mississippi, Colorado, Alabama, Nevada, Connecticut, Arizona, District of Columbia, Georgia, Maryland, Vermont, Florida, Kansas, North Carolina, and Texas. Rhode Island’s proposed 3 percent increase is still pending.
The biggest decrease filed was for Oklahoma, 14.6 percent. All other decreases filed were single digits and included Idaho, Utah, Iowa, Alaska, Nebraska, Louisiana, Illinois, Tennessee, New Hampshire, Oregon, Indiana, Maine, Kentucky, and West Virginia. A proposed 7.4 percent loss cost decrease is still awaiting approval in South Carolina.