WC Market Trends

Workers’ Comp Insurance Price Firming Eases

Workers’ compensation insurance prices continue to rise, but significantly less than a year ago.
By: | February 16, 2014

Employers renewing their workers’ compensation insurance continue seeing price increases, although market conditions are now more favorable than during 2013, several sources said.

On average, middle market employers nationwide are seeing renewal increases in the low, single digits, inching up to 10 percent for accounts with higher losses, said Thomas Delark, a middle market regional practice leader with Aon Risk Solutions. In contrast to a year ago, however, underwriters are less likely to walk away from accounts if they don’t immediately get the price they ask for, he added.

Large employers with large retentions, meanwhile, are experiencing price increases of less than 2 percent and even small decreases in some cases amid robust competition for their business, added Anthony DeFelice, managing director of Aon Risk Solutions’ national casualty practice.

Several factors continue to place upward pressure on workers’ comp insurance pricing, although less so than in 2013, according to a 2014 Insurance Market Outlook report that broker Wells Fargo Insurance Services USA Inc. released January 30.

“While increases will not be as high as 2013, we expect the majority of insureds to experience rate increases throughout at least the first three quarters of 2014 while potentially beginning to moderate in the fourth quarter.” — 2014 Insurance Market Outlook report

Factors impacting workers’ comp insurance pricing include worsening loss severity due to medical inflation and rising indemnity costs driven by issues such as obesity and opioid prescribing, according to Wells Fargo. Low investment returns and insurers’ use of predictive modeling to improve their risk selection are also among factors in play.

Wells Fargo’s report projects that policyholders with guaranteed-cost programs or poor loss experience will see 10-20 percent rate increases and “higher in problematic states such as California and New York and urban areas.”

In general, insureds with low deductibles can expect increases ranging from 5 percent to 15 percent, while those with large retentions will see increases ranging from 0 percent to 5 percent, according to Wells Fargo.

But over the longer term, Wells Fargo expects the market will flatten because of state efforts to curb opioid prescribing, declines in claim frequency, and a reduction in insurer combined ratios due to higher product prices they have obtained over the past three years.

In some cases, small employers are already experiencing an improving trend.

Accident Fund Insurance Co. of America policyholders saw 8 percent to 10 percent rate increases, on average, during the first quarter of 2013, said Michael K. Britt, the Lansing based insurer’s president. But by December prices were rising only 2.4 percent.

While the workers’ comp line remains a challenge for insurers and insurance buyers alike, differentiating a policyholder’s risk profile will help purchasers take advantage of competition among underwriters, says a United States Insurance Market Report 2014 released February 7, by Marsh USA.

“Although carriers may continue to push for workers’ compensation rate increases, differentiating an insured’s risk profile in the market and an ongoing competitive environment should help reduce the magnitude of the push for pricing increases in 2014,” the broker’s report states.

Employers with workers concentrated in large cities, meanwhile face additional challenges.

During 2013 such employers experienced significant price pressure as workers’ comp underwriters have worried over whether Congress will renew the Terrorism Risk Insurance Program Reauthorization Act, before the insurance backstop expires on December 31.

The trend is expected to worsen during 2014 without congressional action, Marsh’s report states.

Roberto Ceniceros is a retired senior editor of Risk & Insurance® and the former chair of the National Workers' Compensation and Disability Conference® & Expo. Read more of his columns and features.

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