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Workers comp market claws its way back to stability

Posted On: Aug. 26, 2015 12:00 AM CST

ORLANDO, Fla. — The U.S. workers compensation market is stable as premiums continue to grow, but rising average claims cost and continued weakness in manufacturing and construction hiring could cause problems for the sector, experts say.

Natasha Moore, practice leader and senior actuary for the National Council on Compensation Insurance Inc. in Boca Raton, Florida, described the workers comp market as calm as it posted its first underwriting gain since 2006 and experienced a 4-point drop in the combined ratio to 98% in 2014 from the prior year. Last year marked the fourth consecutive year of increasing premiums in the industry, which were 6% higher than 2013 at an estimated $44.2 billion, driven by rising payrolls, she said.

“Overall, 2014 was a good year for the workers comp line and the property and casualty industry as a whole,” she said Tuesday at the Workers' Compensation Institute conference in Orlando, Florida. “But we do caution against turbulence ahead.”

More than half of U.S. states have yet to return to prerecession premium levels for workers comp, including Florida, which is still 18% below that level and unlikely to return to prerecession levels until 2017, predicted Robert Hartwig, president of the Insurance Information Institute Inc.

“That means a lost decade,” he said.

Ongoing challenges include the continued increase in average claims cost, which rose an estimated 4% in 2014 to $23,600, Ms. Moore said. Another adverse factor is that employment in the manufacturing and contracting sector remains below prerecession levels, which is constraining additional premium growth, she said.

While the sector has gained about 948,000 jobs since January 2011, it lost 2.3 million during the Great Recession, Mr. Hartwig said. However, the continued decline in the overall unemployment rate is a positive, he said.

“This is good news not just for the U.S. economy, but in particular for workers comp,” he said. “Every new job created is in some sense someone running through the workers comp cash register.”

NCCI is watching several regulatory and legislative trends, including proposals to allow employers to opt out of workers comp programs, with Oklahoma joining Texas by implementing such a provision in February 2014. Tennessee and South Carolina attempted to adopt opt-out provisions this year while Florida, Georgia, North Carolina and West Virginia are among the states considering the option.

“They were not successful, but we expect to see more activity,” Ms. Moore said.

Another trend that bears watching is the impact of the ridesharing economy, which is going beyond companies such as Uber Technologies Inc. to those offering other sharing services, they said. This will be an issue that the entire property/casualty insurance industry, not just the workers comp segment, has to deal with, Mr. Hartwig said, noting the recent decision in California designating an Uber driver as an employee rather than an independent contractor.

“If the state of California ultimately prevails, Uber would be required to provide various types of liability insurance, and I imagine workers comp is going to be one of them,” he said. “Insurers will be able to develop a solution, I believe, with no problem. Driving vehicles is just the tip of the iceberg.”