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Deteriorating comp insurance conditions


Signs the work comp insurance market is in for a bumpy ride continue to mount.

A.M. Best Co. on Tuesday released a report showing that net income for a composite of insurance companies deteriorated $1.4 billion, or 62%, to $0.9 billion in 2008 and improvements are not expected soon.

Work comp is already among the most volatile lines of insurance and then it got unexpectedly slammed by the financial crisis.

Premium volume slid because of prolonged soft pricing, state reforms, and payroll decreases due to rising unemployment. Even Best's title for its report is grim, “Workers' Compensation, How Bad Will It Get?”

According to Best's composite, consisting of 103 insurers, net premiums written plunged 30% from a high of $20.9 billion in 2004. Insurers also experienced underwriting losses of $1.2 billion in 2007 and $1.5 billion in 2008.

Best expects challenging conditions for insurers to continue well into 2010.

So far, employers mostly have been spared. Several states continue to report mandatory rate decreases and market competition has prevented insurers from raising prices, with certain exceptions.

A Business Insurance story reported two weeks ago that insurers may be making up for falling premium volume by releasing reserves rather than raising prices. But how long can that go on?

The current market conditions are also important for injured workers because any attempts to increase benefits will be met with arguments that now is not the time.

The signs of a challenging comp insurance market have been flowing in for some time. The Workers' Compensation Insurance Rating Bureau of California has been seeking a 22.8% rate increase for months.

That is huge, not just because of the amount of increase, but because California is the largest comp market in the nation. What happens there impacts comp insurance for the rest of the country.

Self-insured employers are not immune either. The California Workers' Compensation Institute reported last week that self-insured claim costs in the state rose sharply in 2008 because of rising medical expenses.

On the positive side, Best said it believes comp insurers will not experience the level of losses seen in the late 1990s and rates appear to be stabilizing after years of declining.

But Best said “the segment still faces a great number of challenges over the near term, including the economic pressures that are constricting top-line growth and generating expense pressures.”

Best's report can be purchased for $65 here.