State of the Line: Workers’ Comp Shows Improvement
NCCI has issued its annual report on the status of workers compensation. There's a lot of good news, along with a few warning signs of potential problems on the horizon. If you want the details, check out Chief Actuary Dennis Mealy's presentation.
Premium across the country is up by $3.3B, about 9 percent in all. The all-important combined ratio has dropped from 115 to 109 (projected). Given the very low interest rates (which seriously impede investment earnings), 109 is still high, but it puts profitability within reach. The calendar year loss ratio has dropped from 70.8 percent to 66 percent. Pre-tax operational gains are + 5 percent.
There is also (mostly) good news in the loss area: frequency of lost-time claims is down an average of five percent across all sectors. Indemnity claim costs are up just slightly, as are severity costs. Even in assigned risk pools - insurers of last resort - results have improved, with combined ratios down to 112 percent, compared to 117 in the prior year.
At the same time - and directly related to the improving results - discounting of premiums has diminished from -7.6 percent to a projected level of -4.5 percent.
The New Mod and Its Impact
Beginning in January and rolling throughout this year, NCCI is implementing a new mod calculation, raising the split point of primary losses from $5,000 to $10,000. (See our White Paper for the details.) For many experience rated risks, the change has been positive. Despite paying slightly higher rates in many states, the cost of insurance has remained stable or even dropped. Here is NCCI's summary of the new rating plan's average impact across the country:
- 12 percent of risks see premiums decreasing by 5 to 15 percent
- 76 percent see plus or minus changes within 5 percent
- 11.3 percent see increases in the 5 to 15 percent range
- less than 1 percent see increases above 15 percent
It's important to note, however, that insureds with debit mods on the rise are at risk: agents should proactively contact these accounts and walk them through the changes. (NOTE: Contact Jon Coppelman for help in this critical area.)
On the negative side, the slow pace of economic recovery is troubling, as is the structural unemployment that threatens the livelihoods of many workers. Underwriting is confronted with unprecedented instability in predicting risk. And while consumers love the low interest rates, it's hard for carriers to make money on invested premium dollars. Finally, health care reform may well impact workers comp, but it's just too soon to know how.
NOTE: There are a couple of big caveats on the "good" news: First, NCCI does not administer comp in Massachusetts, which suffers from substantial and prolonged rate suppression. The low rates might be good news for employers, but carriers are struggling to make money - some have abandoned the market and the assigned risk pool is growing. In addition, Connecticut, an NCCI state, is now ranked #2 for cost in the country. Employers in that state looking for good news will not find much of interest in the NCCI report.