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Excess workers comp insurance is a challenging line to underwrite because it guarantees the payment of catastrophic worker claims that can remain open for decades.
But it's precisely for that reason that self-insured employers want to purchase the excess coverage from an insurer that will be around for decades to come, experts say. It's also why few underwriters offer the insurance as a stand-alone product.
The line's challenges were underscored when American International Group Inc. disclosed in a 2012 Securities and Exchange Commission filing that it had ceased writing stand-alone excess workers comp cover because of its extremely long tail and risks that make it “one of the most challenging classes of business to reserve for.”
Issues that escalate costs — such as obesity, opioid pain medication usage and Medicare set-aside requirements — have pushed excess workers comp underwriters to raise their prices and demand that clients assume greater retentions.
With the recent word that Meadowbrook Insurance Group Inc. has lost it's A- rating, “it just further elevates the need (for excess workers comp insurers) to get rates and retentions so they are around when they have to pay the bills on these cat losses,” said Duke Niedringhaus, an excess workers comp specialist and vice president at broker J.W. Terrill Inc. in Chesterfield, Mo.
Mr. Niedringhaus said he is pulling for Meadowbrook's long-term success.
“Hopefully, they get their A rating back and get it behind them,” Mr. Niedringhaus said.
Companies that buy monoline excess workers compensation policies are considering alternatives, after one of the few national underwriters of the coverage was dealt a recent financial warning.