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Workers comp rates are nearly flat, but creep up with company size and risk


Employers renewing their workers compensation coverage at midyear have seen smaller price increases than a year ago, but insurers are being selective about the accounts they underwrite.

“The entire industry is starting to trend closer to flat,” said Stephen Hackenburg, chief broking officer of the national casualty practice at Aon Risk Solutions in New York.

“The first quarter was more of a stabilization period, and the second quarter has been more of a return to softer market conditions,” he said. “We're starting to see rates trend down (around 2.5%), and we're starting to see the return of fairly meaningful rate reductions on the right accounts.”

Large employers are seeing comp rates that are flat to up an average rate of 2.5%, while middle-market employers are seeing rate increases in the 2.5% to 5.5% range, with increases up to 10% for employers with higher-risk profiles, especially those in California, said experts at Willis North America Inc., Lockton Cos. L.L.C. and Aon Risk Solutions. These increases are slightly lower than they were last year, when rate hikes ranged from 2.5% to 5% for large employers and 5% to 10% for mid-market employers.

However, according to a recent analysis by Moody's Investors Service Inc., rates are expected to remain “sufficiently above loss-ratio inflation (about 2%) to generate further margin expansion and achieve an underwriting profit in the year.” The Moody's analysis projects that workers comp insurers will achieve underwriting profitability in 2014 with a combined ratio of 98%.

“Demand is picking up because the economy is getting better and supply has never been higher,” Mr. Hackenburg said. “When you combine that with the (fact that) insurance companies are performing pretty well — their profitability and return on equity has been improving — that's a pretty good recipe for increased competition and improved pricing for insurance buyers.”

Midsize employers are primarily seeing higher rates because they're buying guaranteed-cost workers comp coverage with little or no self-insured retentions often used by larger employers, said Pamela F. Ferrandino, New York-based national casualty practice leader of placement at Willis North America.

Despite the softening rates overall, “the marketplace still has a good deal of discipline,” said Eric Silverstein, Dallas-based risk management leader at Lockton, with employers with higher experience modifications and higher risk profiles seeing greater increases.

Uncertainty about whether the federal terrorism insurance backstop will be renewed continues to affect the comp market, primarily for companies with large worker populations in New York and California, experts say.

While legislation has been introduced to renew the backstop, the threat that it might expire has led “some insurers to build sunset clauses into policies,” said Carolyn Snow, Louisville, Kentucky-based director of risk management at Humana Inc. and president of the Risk & Insurance Management Society Inc.

The backstop is not an issue for Humana, which renews in January, Ms. Snow said.

“We've only seen it materially impact a few dozen accounts on our books,” Mr. Hackenburg said. “It's hard to label it as an industry-changing event. It's certainly very material if you're a very large financial institution in lower Manhattan. It's a very big deal for them, but for the majority of our clients, it hasn't been.”

Some employers are holding down their total costs by turning to alternative ways to transfer the risk.

“If you can find alternative ways to manage that risk, for example, use a captive, which is one of the things we do (at Humana) ... then the money that goes out the door is less,” Ms. Snow said.

Mr. Silverstein said many employers with whom he works are interested in captives to retain risk over longer periods, as well as “areas where they can have a positive outcome on lost cause — like training, like data analytics, things of that nature.”

More companies are implementing safety and wellness programs to keep their comp costs down, Ms. Snow said.

“Wellness really has great benefits,” she said. “Obviously, it helps the insurance companies, but it really helps the employees and it helps the employers. It's one of those rare programs where everybody can benefit.”

Though not all employers are enjoying the softer market conditions, “the competition seems to be getting greater and greater as time goes on,” Mr. Hackenburg said.

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