Workers Compensation - State of the Industry

The National Council on Compensation Insurance (www.NCCI.com) provides annual reports on the state of the industry.  The following are some interesting facts:

- The workers compensation insurance product line reported revenue of $37.0 billion for 2013.

- The combined ratio for 2013 was 1.01%

- That combined ratio calculates a $370.0 million loss (1% of revenue) for the industry.

What is the combined ratio?

The combined ratio measure the profitability of the line.  It general it combines the losses incurred from claims plus the expenses for running the program.  It does not include the gains from investing the premiums so actual losses are a bit lower.  Unfortunately we have all experienced yield compression during the last two years.  It's hard to make a return on our savings.

 - In 2001 the combined ratio was 122.0%......wow!

That's a record loss year for the industry!

- During the last 35 years the industry has only had a combined ratio less the 100% four times.  Only twice in the last decade.  It has been hard to make money.

With investment returns at historical lows the industry is searching for ways to contain cost.  Claims management will continue to be the focus.

Workers Compensation rates continuing to increase in 2014, but at a slower pace than 2013.

Workers compensation rates are continuing to increase this year, but at a slower rate than 2013, according to an analysis released this week by Moody’s Investors Service Inc.

Rate firming is expected to slow to 5.5% this year, down from 8% in 2013, Moody’s said in Monday’s report. Still, this year’s rate increases are expected to remain “sufficiently above loss-ratio inflation” of about 2%, allowing an underwriting profit for 2014.

“However, our rate surveys suggest a reversal in risk appetite for WC in 2014, with carriers seeking to retain profitable accounts and competing for new business, which will dampen the pace of rate increases,” the report reads.

Moody’s expects that workers comp insurers will have a combined ratio of 98% in 2014 and 96% in 2015 if current industry trends continue, including rate increases and a reduction in taking on unprofitable accounts. That’s compared with a combined ratio of 103% in 2013.

Reserves for workers comp insurers “appear about break-even to modestly deficient for the industry,” Moody’s said. The use of predictive modeling in workers comp could lead to more stable loss reserve estimates in the future as the comp industry accepts such technology on a wider scale, according to the analysis.