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Discussions about an employer's workers compensation program typically focus on specific considerations, such as insurance coverage structure, claims management or loss control strategies. But an increasingly challenging workers comp environment requires a coordinated approach that considers the entire program, said Jonathan Zaffino, managing director/U.S. casualty leader for Marsh Inc. in New York. So Marsh recently launched a Center of Excellence to coordinate resources from across several of its units including its casualty practice, risk management consulting, claims advisory and analytics. Business Insurance Senior Editor Roberto Ceniceros recently asked Mr. Zaffino about the timing of Marsh's launch.
Q. Is Marsh launching the Center of Excellence now because you expect workers compensation insurance prices will continue rising?
The timing inevitably raises the question as to why now.
But this is not a market-cycle effort. It's an effort to align our resources to deliver them to our clients.
Clearly, the technical work comp (insurance) market is in tough shape today and we don't expect much change on the horizon.
Work comp insurance for the third year in a row has the highest combined ratio of all commercial lines. You look at a backdrop of benign interest rates, insurance rate trends, and medical and indemnity severities and it's hard to see this changing.
But there are a lot of structural fundamental issues that are almost agnostic to the market cycle, such as an aging workforce, obesity and medical costs. So clearly, this initiative hopefully will have a very beneficial long-term and immediate impact for our clients.
Q. How would you describe policyholders' level of concern about rising workers comp insurance prices?
There are different levels. If you are a guaranteed-cost buyer with a predominant part of your exposure in California, you can put that at the highest possible level of concern because reaction in the (insurance) market has been most extreme there.
To the degree you have a very evolved, sophisticated risk-finance program with a lot of attendant strategies, you have concern, but it's moderated concern.
The reaction we often get from our clients is that (the insurance market) feels tentative. The real concern is what if it continues to worsen next year and the year after? How long are these subpar insurer results sustainable? Does the market react even more extreme in subsequent renewal periods? There is definitely a lot of focus on it.
Q: What solutions do you offer?
We are spending a lot of time on developing analytic tools, some of which are an evolution of our current diagnostic tools, to be capable of looking at a client's workers comp profile and draw insights. Or at least form the bases of a broader discussion to say, “We see three or four areas worthy of our collective focus to attack the loss drivers.”
It gives our clients an opportunity to think of their current work comp program holistically. To think about change they might implement, whether that is program structure change, whether it's utilization of a captive. Whether it's an upfront investment today to achieve greater return on investment tomorrow, we are outlining those best decisions for them.
All these things impact their insurance programs and costs. We can help them articulate to carriers what they are doing and how that improves their loss profile.
It can help them alleviate problems such as their collateral burden or it might help them achieve longer-term relationships with the market.
There are a whole host of outcomes based on that fundamental analysis.