The Fading Fortunes of the Work Comp Business
Monday, September 14, 2009 | 0
By Joe Paduda
The work comp insurance industry has been hit hard by declining revenues and a big drop in investment income. While the investment picture is brightening somewhat, the revenue side is not getting any better.
Continued high unemployment and associated smaller payrolls has directly affected premium income, while higher claim severity and a soft market that won't end are adding to work comp executives' misery.
And execs have a lot of reason to be miserable. Consider:
- Net written premiums declined twelve percent in 2008, the third consecutive year of decreases
- The combined ratio (claims plus admin expense) climbed to 104.4% last year - historically not so bad, but given the awful investment returns, bad enough
- Medical costs continue to climb significantly faster than the overall medical CPI
- Net income for the entire industry declined to below $1 billion, a drop of more than 60%t from the prior year
Remember that perspective is historical — things will turn around, although it may take another 12 months or so.
If employment picks up, and it should as the economy strengthens, premiums will head north. With AIG somewhat out of the woods, brokers and agents are expecting the pricing wars to taper off (some opine that AIG has been aggressively pricing business in an effort to hold on to clients and grab much needed revenue).
If — a huge if — health reform efforts bear fruit, there will be less pressure on providers to cost-shift to workers' comp payers. And the investment returns look to be recovering somewhat.
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Joseph Paduda's blog, managedcarematters.com, focuses on managed care for group health, workers' compensation, auto insurance, cost containment, health policy, health research, and medical news for insurers, employers, and health care providers. Paduda is the principal of Health Strategy Associates.
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