Moore: Workers' Comp Insurance Crisis Comes From Outside U.S. — or Does It?

Monday, January 22, 2018 | 0

I have written often that China’s banking crisis could cause quite large rumblings in most of the domestic financial markets, including insurance. Where would the crisis be the most devastating?

James Moore

A recent Business Insider article even remarked that China’s own bankers call the current credit crisis there as a “bubble.” China has followed the U.S. by financing growth with pure debt — in other words, borrowing money to invest. The volatility from China is twice as high as anywhere else in the world. 

Currently, any type of insurance-based crisis may seem like an occurrence that will not happen for many years. The insurance carriers can invest the premiums into stocks, which has made everyone, including insurance companies, a tidy sum over the last year.   

However, if China pulls its investments in the U.S. back to China to cover the “banking bubble,” the financial markets would feel more than just a ripple effect. The days of the 1990s insurance crisis would return very quickly.  

After all, China holds a large amount of U.S. debt instruments: Basically, the U.S. borrows from China to run the federal government. 

I am not implying that there is an upcoming workers' comp insurance crisis in the near future.  Employers cannot just keep expecting low rates due to the investment returns by a certain carrier or group of carriers. 

The bottom line is to not be complacent in your insurance programs, even if self-insured. In other words, now is a great time to explore a Plan B coverage for your workers if your company could not find coverage in the general marketplace. Company owners and risk managers lose much sleep when having to ingest the assigned risk pool rates.  

As mentioned often in the articles on this website, if the insurance carriers decide to not write a certain business, companies with an experience modification rate of .90 end up in the risk pools. The rates can increase over 400% in just one year when being placed into the assigned risk pool. 

Hopefully, I can look back at this article and ask myself — was I being too paranoid? — and make a joke about the non-occurrence of a workers' comp insurance crisis.

This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.