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Workers comp insurers stay profitable amid industry changes

Posted On: Dec. 20, 2015 12:00 AM CST

Private workers compensation insurers likely experienced a second straight year of underwriting profitability in 2015, according to the National Council on Compensation Insurance Inc.

Based on preliminary data as of midyear, the Boca Raton, Florida-based rating agency estimated workers comp insurers would have a profitable combined ratio of 96% for all of 2015.

That means the comp industry is “pretty healthy,” but the sector can no longer count on the conservative 5% to 7% minimum investment growth that improved its overall financial results in the past, said John Leonard, president and CEO of Portland, Maine-based Maine Employers' Mutual Insurance Co.

“Those days are gone,” Mr. Leonard said. “You really have to have an underwriting profit because of the drain on investment income.”

Slower residual market growth in 2014 also is a sign that the voluntary workers comp market is vibrant and competitive and expected to remain so in the short-term, experts said.

With a combined ratio of 98%, 2014 was the first workers comp underwriting gain since 2006, NCCI said.

Other major workers comp-related developments in 2015 included:

Opt-out efforts

Legislation was introduced in Tennessee and South Carolina in 2015 to allow employers to opt out of the states' workers comp systems and provide alternative coverage for injured workers, but that's as far as it progressed.

The bills were based on Texas' 100-year-old nonsubscription system and the Oklahoma Employee Injury Benefit Act that went into effect in 2014.

More than 55 employers have opted out in Oklahoma to date, but critics continue to challenge the constitutionality of opt-out plans, saying they provide insufficient benefits. Backers, however, say an opt-out system allows for better care for injured workers compared with the traditional workers comp system.

“With (workers comp insurance) prices dropping in the state at the same time that Oklahoma was going through opt-out, I'm not sure the interest is quite as robust as it could have been if those things had not paralleled together,” said Mark Moitoso, senior vice president and analytics practice leader at Lockton Cos. L.L.C. in Boston.

Terrorism backstop

The renewal of the federal terrorism insurance backstop in 2015 helped ensure that workers comp capacity remained available for employers with large concentrations of employees in urban areas.

The Terrorism Risk Insurance Program Reauthorization Act of 2007 expired at year-end 2014, but President Barack Obama signed a bill in January extending the backstop through Dec. 31, 2020.

The two-week lapse in coverage worried insurers, since terrorism claims can't be excluded from workers comp coverage.

Extending the backstop through 2020 “was a major event, having that uncertainty removed from the marketplace,” said Stephen Hackenburg, chief broking officer at Aon Risk Solutions' national casualty practice in New York.

On-demand economy

Federal courts have continued to weigh whether drivers for ride-sharing services such as Uber Technologies Inc. and Lyft Inc. are employees or contractors.

In September, U.S. District Judge Edward Chen in San Francisco granted class action status to Uber drivers, meaning their suit seeking employee status could cover more than 160,000 California drivers.

Meanwhile, California delivery drivers for's Prime Now service sued in Los Angeles County Superior Court in November, saying the Internet retailer misclassified them as contractors rather than employees.

Workers in each case say companies failed to provide them minimum wage and overtime pay as well as workers comp coverage.


While the cost of opioids has increased along with a surge in the average wholesale price of medications, the utilization of such drugs decreased in 2015, which experts attributed to the use of prescription drug monitoring databases and drug formularies.

In October, Connecticut became the latest state to require that health care providers check the state's prescription drug monitoring program before prescribing more than a 72-hour supply of any controlled substance and at least every 90 days for ongoing treatment of any patient.

Also in October, California Gov. Jerry Brown signed into law a bill to establish a closed formulary for workers comp medications.

Medical marijuana

Medical marijuana is legal in more than 20 states and the District of Columbia, but many workers comp systems are still on the fence about whether it's medically necessary for injured workers.

In June, the Colorado Supreme Court ruled that workers who use medical marijuana, which is permitted by state law but not federal law, are not protected by the state's “lawful activities statute.”

Meanwhile, the New Mexico Court of Appeals has ruled three times since May 2014 that medical marijuana is “reasonable and necessary” for injured workers and should be covered under comp.


The U.S. Occupational Safety and Health Administration sifted through roughly 12,000 injury and illness reports generated under its revised reporting requirements that went into effect with the start of the year.

OSHA mandated that employers report the hospitalization of a single employee as well as all amputations and loss of an eye within 24 hours of management learning of the incidents.

The revised reporting requirements are a major issue for risk managers, who need to ensure that injuries are properly documented on the correct forms, said Robert Cartwright Jr., Exton, Pennsylvania-based safety and health manager at Bridgestone Retail Operations L.L.C. and treasurer of the Risk & Insurance Management Society Inc.

“Record-keeping is going to be problematic for some people,” he said.

State reforms

In North Carolina, the Industrial Commission revised its medical fee schedule to lower maximum fees for hospitals and other institutional providers and increase fees for physicians, nurses and other professional providers.

Collateral requirements

Also in 2015, workers comp insurers relaxed their collateral requirements for high-deductible policies as credit markets improved and insurers competed for profitable comp accounts.

Sheena Harrison and Gloria Gonzalez contributed to this report.