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Residual market weighs options amid competition

Posted On: Jun. 4, 2015 12:00 AM CST

As conditions in the workers compensation insurance market evolve amid increased competition and improving insurer profitability, residual market insurers such as the one in Colorado are reassessing their place in the market.

The residual market serves companies that are mandated to have workers compensation coverage, but are unable to procure the desired terms and conditions in the voluntary market, said Jim Nau, Boca Raton, Florida-based general manager of residual markets for the National Council on Compensation Insurance.

New or risky businesses, such as companies with high workers comp claim losses or those in accident-prone industries, are the most likely to obtain coverage in the residual market.

Among the 30 states, including Colorado, where NCCI is the plan administrator, the residual market share was 6.8% in 2014, slightly above 2013's share of 6.6%, Mr. Nau said.

“It's an indication that the voluntary work comp market is competitive and that … you're not having a large percentage of your market needing coverage in the residual market,” Mr. Nau said. “We're in a good, stable, manageable range.”





Philip B. Kalin, Denver-based president and CEO of Pinnacol Assurance, which provides both voluntary and residual market coverage, said the two markets are inextricably linked for Colorado's state-chartered workers comp insurer.

“We don't make a distinction between the residual market and any other of our policyholders and their employees,” Mr. Kalin said, noting that roughly 10% to 20% of the company's book of business is in the residual market.

Yet maintaining prices and market share in the voluntary market is difficult as new competitors move into the space, Mr. Kalin said.

“What we are now seeing is a softening market as more dollars are directed at this industry,” Mr. Kalin said. “With more competitors coming in, you have to work harder to get new business.”

Although Mr. Kalin recently testified before the Colorado Legislative Audit Committee that the company may consider entering new lines of business or expanding outside the state, that would require changing Colorado law. Accordingly, the insurer is focusing on its commitment to its existing customers through improved services and investment in technologies such as predictive analytics, Mr. Kalin said.

“The world of big data and predictive analytics is evolving so fast that you don't want to rest on your laurels,” he said. “So we are very focused on building up scale and capacity in technology so that we can anticipate where the markets are going.”