Insurance Purchasing

Workers’ Comp Buyers Look Inward

Insurers’ improved combined ratio no guarantee of softer markets ahead.
By: | May 22, 2014

Buyers and managers of workers’ compensation programs say they are encouraged by accelerating insurance trends in their favor, but they hasten to add there are no guarantees and that they can only rely on themselves for further improvements.

Cynthia Clipper-Gray, injury prevention manager, Eisenhower Medical Center

Cynthia Clipper-Gray, injury prevention manager, Eisenhower Medical Center

“We are coming out of a recession, and in a recession there is a limit on everyone’s ability to make money,” said Cynthia Clipper-Gray, injury prevention manager at Eisenhower Medical Center in Palm Springs, CA, a finalist in the most recent Risk & Insurance Teddy Awards.

“Payroll and loss runs are the major factors in workers’ comp, and even if there are major changes in those and other factors, the net may end up as little or even no change,” Clipper-Gray explained.

She cited reports from the Occupational Safety & Health Administration, as well as the California Workers’ Compensation Institute, indicating that industry overall is becoming safer, with fewer severe injuries. “We have the position that workers’ comp is a manageable cost, and that drives a prevention approach.”

The trends and factors that managers report anecdotally are confirmed in industry data. Workers’ compensation insurance combined ratio declined markedly from 108 in 2012 to 101 in 2013, according to the annual State of the Line analysis recently released by the National Council on Compensation Insurance (NCCI). The ratio is a measure of underwriter profitability, costs as a function of income; ratios below 100 indicate underwriter profits.

The ratio has tumbled sharply in the past two years, from 115 in 2011 to 108 in 2012, a 6 percent decline. The 6.5 percent decline from 2012 to 2013 indicates an acceleration of the decline.

Stephen J. Klingel, NCCI president and CEO

Stephen J. Klingel, NCCI president and CEO

“We are finally starting to see an industry in balance with these results,” said Stephen J. Klingel, president and CEO of NCCI. “Today, industry costs are largely contained, claims frequency continues to decline, and the system in most states is operating efficiently. In short, the market is operating as it should on behalf of most stakeholders.”

Kathy Antonello, NCCI chief actuary added, “Overall, the workers’ compensation line showed a number of positive results in 2013. Premiums grew for the third consecutive year, and at the same time, the combined ratio fell by seven points. Going forward, however, some challenges remain.”

The recent record high for the ratio is 122, reached in 2001 said Karen Ayres, director and actuary with NCCI. “The general recovery in the economy played an important role in the decline. Payroll is the driver of workers’ comp premiums, and that has definitely increased in recent years.”

Ayres stressed that the combined ratio trends alone are not strictly indicative of softer markets for insureds preparing for their next renewal. “We provide a benchmark for the industry,” she said. “There are many factors that go into it, and each affects underwriters and insureds individually. There has been strong premium growth in recent years, and that has definitely been a factor. But control of costs has also been very important. The long-term trend in both claims frequency and claims severity is downward.”

A market in balance means “the industry should feel encouraged,” said Ayers, “but uncertainties linger, and continue to be of concern. We have health care reform, expiration of the Terrorism Risk Insurance Act, and investment returns continue to be low. The industry focus will continue to be on good underwriting.”

Gregory DL Morris is an independent business journalist currently based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected].

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