No Rest for the Workers’ Comp Industry
Sustained combined ratio improvement, increased premium growth and a further fall in claim frequency - the Workers’ Compensation (WC) industry has been performing well for some years. As delegates heard at the last National Council on Compensation Insurance (NCCI) Annual Issues Symposium (AIS), solid financials made 2015 another good year for the industry.
In her “State of the Line” report, NCCI chief actuary Kathy Antonello gave an overview of trends and cost drivers in the WC industry. Net written premium for private carriers rose last year by 2.9% to $39.7 billion - the fifth consecutive year of growth. The total market is now worth $45.5 billion, approaching the pre-recession peak of $47.8 billion in 2005.
The calendar year combined ratio improved to 94% for private carriers, compared with a revised ratio of 100% for 2014. The loss ratio was 54% (the lowest in 25 years), reflecting a 6-point decline against the prior year. The news that accident-year medical severity was down is also welcome.
But, as suggested by the theme of this year’s symposium, “Channeling Change: Meeting the Challenges of an Evolving Market,” it’s no time for the WC industry to rest on its laurels.
In his keynote speech, new NCCI President and CEO Bill Donnell said that in addition to addressing regulatory and low interest rate challenges, carriers need to stay aware of developments in the workplace - including new monitoring technology, expanded automation and evolving innovation in how employees work.
Dr. Robert Hartwig, an economist and immediate past president of the Insurance Information Institute - as well as a regular speaker at these events - observed that profits and ROE continue to remain below pre-recession levels, despite three consecutive years of underwriting profitability.
Dr. Hartwig, who is now a faculty member in the University of South Carolina’s Finance Department, also stressed that depressed investment yields will continue to greatly influence underwriting and pricing.
Looking into the future, he said that the fast-growing “sharing economy” is attracting political and regulatory scrutiny, particularly with regard to workplace protections and the employee/independent contractor issue. These trends have insurance coverage implications that will have to be addressed soon, he warned.
Plenty of other background issues - prescription drug inflation and its effect on reserves, for example - were discussed at the NCCI symposium. You can learn more about the information shared by visiting the NCCI webpage of their AIS 2016 Highlights.