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Workers compensation market 'conflicted' despite economy's rebound: NCCI

Posted On: May. 10, 2012 12:00 AM CST

While workers compensation insurer premium growth shows “that the worst of the recession has passed,” the insurance market for injured-employee coverage “remains in a worrisome state,” NCCI Holdings Inc. reported Thursday.

Overall, the workers compensation market is “conflicted,” the Boca Raton, Fla.-based rating and statistical research organization reported in its annual “State of the Line” market analysis.

Insurers' net workers comp written premium nationwide increased 7.4% to $36.3 billion during 2011, the first increase since 2005. From 2006 to 2010 workers comp insurers' premium had declined a total of 27%, NCCI reported.

But while the increased premium volume is a positive development, “for the third straight year, workers compensation holds the distinction of having the highest combined ratio of all the major commercial lines,” NCCI said.

The line's calendar-year combined ratio for private insurers reached 115% in 2011, holding steady from a year earlier.

“Workers compensation, because of its direct connection to employment and the labor markets, has been the property/casualty line most significantly impacted by the continued difficult economic environment,” NCCI chief actuary Dennis Mealy said in a statement. “Combined ratios remain at unsustainably high levels, and investment returns are not sufficiently high to generate operating returns near the cost of capital.”

Yet even though NCCI sees a challenging environment for a “market that is conflicted as to its forward trajectory,” the industry remains well capitalized for the future, NCCI reported.

Among other findings, NCCI also reported that private insurers' reserves continued a modest deterioration for the fourth consecutive year with an estimated $11 billion deficit at year-end 2011.

And so far in 2012, loss costs have generally increased, largely due to a significant jump in California, but also because of factors present in other states, such as longer claim durations and upward pressure on claim frequency.