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Sheena Harrison

Workers comp market has attained balance, but outlook remains unclear

But outlook unclear for underwriters

May 11, 2014 - 6:00am

Workers Compensation Market


ORLANDO, Fla. — The workers compensation market is “balanced,” with combined ratios for private comp insurers falling 14 percentage points since 2011, but several property/casualty insurance industry issues could present workers comp concerns down the road, according to the National Council on Compensation Insurance Inc.

Boca Raton, Florida-based NCCI said private workers comp insurers' combined ratio declined to 101% in 2013, compared with 108% in 2012 and 115% in 2011. And this measure of profitability is one sign of a comp market that has become more “balanced” since the Great Recession, said NCCI President and CEO Steve Klingel.

“Industry costs remain largely contained,” Mr. Klingel said during a presentation at NCCI's 2014 Annual Issues Symposium in Orlando last week. “At present, there is a reasonable expectation for some level of profit. Claim frequency continues to decline. And importantly, the system in most states ... is operating effectively and efficiently. In short, the market is operating as it should.”

NCCI chief actuary Kathy Antonello said private insurer workers comp premiums grew 5.4% to $37 billion in 2013, driven largely by payroll growth and comp insurers' price increases.

In addition, she said NCCI estimates there was an $11 billion reserve deficiency for private comp insurers in 2013, down from an estimated $13 billion deficiency in 2012.

Still, both NCCI officials said various factors could generate uncertainty about recent improvements in the workers comp market. They include the effect of federal health care reforms on workers comp, the potential expiration of the federal terrorism insurance backstop and continued low interest rates that limit insurers' investment income.

“As long as interest rates remain low, attention to underwriting is really important” for comp insurers, Ms. Antonello said.

It's likely the federal terrorism insurance backstop will be replaced or extended before the end of this year, insurance and reinsurance experts said during a panel discussion. But they differed on whether the backstop should remain unchanged and what responsibility insurers and employers should have.

The backstop, established by the Terrorism Risk Insurance Act of 2002, was renewed in 2005 and in 2007 under the Terrorism Risk Insurance Program Reauthorization Act. The latest version is due to expire Dec. 31.

Steve Ellis, vice president of Washington-based nonprofit Taxpayers for Common Sense, said TRIA should be allowed to expire, which would place responsibility on insurers and employers to help reduce their own terrorism exposures.

“Price helps encourage certain behaviors, and we want to make sure that we're encouraging people to try to mitigate their terrorism risk as much as possible,” Mr. Ellis said.

While it's likely TRIA will continue in some form, it's also probable that property/casualty insurers and employers will be required to assume a larger portion of terror losses under a new backstop, said Andrew Winyard, nonmarine casualty reinsurance underwriter and executive director at Atrium Underwriters Ltd. in London.

That's particularly true in workers comp, which prohibits insurers from excluding nuclear, biological, chemical or radiological attacks from policy terms, said Mr. Winyard, who favors renewing or extending TRIA.

Max Koonce, senior director of risk management for Bentonville, Arkansas-based Wal-Mart Stores Inc., said employers hope that TRIA or a comparable program will be available in 2015 because the backstop has helped add predictability to workers comp pricing.

In a separate presentation, Insurance Information Institute Inc. President Robert Hartwig said employment gains are expected to come from the oil, gas and energy sector, as well as the health care industry, as more medical workers will be needed to deal with increased patient loads under federal health care reforms.

Those increases will provide workers comp insurers with underwriting challenges, as well as an opportunity to grow their written premiums by covering such employees, Mr. Hartwig said.

“We are potentially on the cusp of a period of sustained, more robust growth in jobs in the United States,” Mr. Hartwig said. “That translates directly into an acceleration in the pace of workers comp payroll exposures.”

 



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