Workers’ Comp Line in Robust Health
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.
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.
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.
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.