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An “enormous amount” of insurable workers compensation payroll exposure will be unlocked as the economy creates more jobs, said Robert Hartwig, president of the Insurance Information Institute Inc.
While 4.7 million private sector jobs have been created since early 2010, that growth still is not sufficient to help millions of unemployed workers find a job, Mr. Hartwig said when discussing workers compensation insurance's link to the economy as well as ongoing insurance price increases.
The number of people on payrolls, which is workers comp's exposure base, dropped precipitously during the Great Recession. But 2011 marked the first year since 2005 that experts saw growth in premiums written, Mr. Hartwig said last week during a keynote address for Business Insurance's Workers Compensation 2012 Virtual Conference.
“That is absolutely fantastic news and comp has actually gone from the fastest-shrinking line, (to) now in 2012, most likely to the fastest-growing of all commercial lines,” Mr. Hartwig said. “So things are turning around (for insurers') top line. Things now need to turn around on the bottom line.”
Insurers' bottom line is reflected by high combined ratios, which are driving underwriters to remedy the situation by obtaining higher prices for their products, Mr. Hartwig said.
“What we see is the poor results of workers compensation (with) the combined ratio being in the 116% to 117% range,” Mr. Hartwig said.
“It is pushing rates upwards and what we see is that workers comp's most recent renewals in mid-2012 were up about 8%. Earlier in the year and late in 2011 (they were) up about 7.5%,” he said.
The price increase trend is likely to continue into 2013 because increases are needed to turn around insurers' poor underwriting results, he said.
In discussing how the low interest rate environment is affecting insurers, he said workers comp underwriters are particularly sensitive to low interest rates because of the long-tail nature of claims.
Investment income is about 10% below its level before the financial crisis began, Mr. Hartwig said.
“In workers compensation, to offset a 1% decline in investment yield ... the insurer needs to improve its underwriting results in workers comp by 5.7 points,” Mr. Hartwig said. “In other words, it needs to reduce the combined ratio by 5.7 points.”
Regarding the overall economy, Mr. Hartwig said that wage growth in general along with slow but steady job growth in several sectors have helped drive an increase in the workers comp exposure base.
But “it's going to take us another couple of years to completely heal the wounds from the Great Recession,” Mr. Hartwig said.
To access the virtual conference, go to www.Business Insurance.com/CompCosts.