Workers' Comp Looking Up?

Friday, May 24, 2013 | 0

Dennis Mealy, chief actuary for the National Council on Compensation Insurance, has issued his state of the line report on workers' compensation. There's a lot of good news for insurers, along with a few little red flags that might well morph into big banners of bad news. Mealy's presentation is available as a webinar at the NCCI site, but for the moment, let's glean the essence from his PowerPoint presentation.

There's a lot of positive news (with apologies to those who are not up to speed in insurance jargon). Premium is up by $3.3 billion, about 9% in all. The all-important combined ratio has dropped from 115 to 109 (projected). Given suppressed interest rates, 109 is still high, but it puts profitability within reach. The calendar year loss ratio has dropped from the unacceptable 70.8% to 66%. Pre-tax operational gains are plus 5%.

There is (mostly) good news in the loss area: frequency of lost-time claims is down an average of 5% 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%, compared to 117% in the two prior years.

At the same time and directly related to the improving results, discounting of premiums has diminished from -7.6% to a projected level of -4.5%. [Perhaps even the skeptical rate setters in Massachusetts will begin to see the relationship between (slightly) higher rates and a healthy market. If they continue their intransigence on rate increases, the Massachusetts miracle will soon collapse in a heap.]

Who Pays?

In all success stories, however modest, there are winners and losers. In workers' comp, the winners are employers with low losses; the losers tend to be those with relatively high losses. NCCI has upped the ante by changing the way experience mods are calculated.

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 Tom Lynch's detailed explanation beginning here.) 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 impact:

• 12% of risks see premiums decreasing by 5% to 15%.
• 76% see plus or minus changes within 5%.
• 11.3% see increases in the 5% to 15% range.
• Less than 1% see increases above 15% (these are the folks who have been calling...).