Workers’ Comp Market Shines Again
New figures from the National Council on Compensation Insurance revealed that 2018 was another stellar year for the Workers’ Compensation industry.
In an eight-year run of improving results, private carriers posted an impressive 83% combined ratio on a calendar year basis (97% accident year) - the lowest combined ratio on record for Workers’ Comp since the 1930s. Last year was the fifth consecutive year that the Workers’ Comp line made an underwriting gain. It also saw an overall increase in net written premium, a further decrease in claim frequency, and a rise in pre-tax operating gains.
The latest National Council on Compensation Insurance (NCCI) AIS State of the Line report highlights include:
- The 2018 net written premium rose by 8.5% to $43.2B
- Investment gain in insurance transactions dropped to 9% from the prior year
- Medical severity was up by just 1%
- Average indemnity claim severity increased by 3% to $24,600
- Evaporation of reserve deficiencies resulted in a $5B reserve redundancy for private carriers
- Lost-time claim frequency fell 1% in a continuing reduction, albeit smaller decline than prior years
Source: 2019 NCCI AIS
In its excellent State of the Line report for 2019, NCCI also reported that loss development has been positive over the last five years. Paid development decreased by almost 4% since year-end 2013, while paid plus case development dropped by about 6% during the same period. While indemnity severity continues to rise, it has been outpaced by wage inflation since 2008, reversing the trend of the prior decade.
NCCI attributes the improving picture to include the downward trend of opioid use which helps to temper medical severity, while also favorably impacting indemnity severity by shortening the duration of claims.
Additional factors may also include the industry’s increased use of technology, leading to an improved ability to triage claims and keep a strong focus on safety and medical cost containment.
A predictable counterpoint to these strong results was that premium rates decreased across the country. In 2018, every NCCI state, except for Hawaii, experienced a decrease in rate.
Speaking at this year’s Annual Issues Symposium (AIS), NCCI President and CEO Bill Donnell acknowledged the unprecedented run of positive results. But he did add a note of caution about the future, stressing that the Workers’ Comp industry must remain strong to face any new challenges, to fulfill its purpose, and to continue meeting its commitments.
Mr. Donnell said that insurers should not lose sight of the core functions of underwriting, reserving and claims, which create a sustainable business for themselves along with a stable and solvent marketplace.
Referencing the changing workforce demographic, he said that while loss frequency has continued its 20-year decline, the decrease has occurred across all demographics, regardless of age, gender, sector, etc. For this reason, the drop in frequency is not related to the demographic changes that have occurred over the years.
The future regulatory landscape is far from certain, he added, with familiar topics such as marijuana, exclusive remedy, opt-out and new developments including InsurTech innovations and “Medicare for all” on the radar.
I agree wholeheartedly with Mr. Donnell’s insights and his reminder that Workers’ Comp is a cyclical industry. While positive loss trends continue at this time, the future is uncertain, and we can be sure that new challenges will emerge. How will medical inflation trend? What will the next opioid-like issue be? What could cause frequency to reverse course? These are some of the concerns that I hear regularly from our clients.
Workers’ Comp is a long-term business and requires long-term thinking and planning. The strength of your partners matters. We want to see these favorable results continue, and that’s why Gen Re is dedicated to working with our clients to keep their Workers’ Comp business on the right track.