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ORLANDO, Fla. — The year 2018 was the fifth consecutive year that the workers compensation line posted an underwriting gain, with total market net written premium volume increasing to $48.6 billion in 2018, according to data released Tuesday by the National Council for Compensation Insurance Inc. at its annual Issues Symposium.
Calendar year 2018 combined ratio for private insurers stood at 83%, according to NCCI’s annual “state of the line” report, delivered by Kathy Antonello, chief actuary for Boca Raton, Florida-based NCCI, at the meeting in Orlando, Florida.
“We are in uncharted territory,” she said of the findings in the annual report, which will be made available on NCCI’s website Tuesday. Providing an annual review of industry market conditions, the report includes information on financial indicators, trends, cost drivers and broad economic markers.
The combined ratio for private workers compensation insurers in 2018 made for a second year of a historic low not seen since the 1930s, said Ms. Antonello, who reported a combined ratio of 89% in 2017.
“The industry’s favorable combined ratio results over the last several years has been primarily driven by notable improvement in the underlying loss ratios,” Ms. Antonello told attendees. “Underwriting discipline appears to have contributed to these results in what seems to be a perpetual low interest rate environment, with low investment returns.”
Technology is also having an impact on underwriting, and that the “unprecedented results” can in part be attributed to “faster data and improved analytics” giving industry stakeholders immediate access to information, Ms. Antonello told attendees.
“You can never underestimate the power of data-driven insights to challenge our assumptions,” she said.
On an accident-year basis, the industry reported 2018 workers compensation combined ratio was 97%, with NCCI expecting this accident year’s combined ratio to develop “favorably” over time, according to Ms. Antonello.
NCCI also estimates that as of year-end 2018, the overall reserve position for private carriers is a $5 billion redundancy, the report showed. A redundant workers compensation reserve position has not been observed in at least 25 years, according to the report.
Regarding average lost-time frequency, preliminary data across NCCI states showed a decline of 1% in 2018. Meanwhile in NCCI states, the preliminary 2018 average indemnity accident year claim severity increased by 3% and medical lost-time claim severity increased by 1%.
The state of the line report also showed workers compensation residual market pool premium volume was approximately $1 billion during 2018, representing a residual market share of about 7%.
Payroll trends and comp
In a separate session, economist Robert Hartwig gave attendees a glance of the economic conditions in the United States and how historic low unemployment and increases in payroll will contribute to affect the workers compensation industry. “This industry is joined at the hip with the economy overall,” he said.
“The (3.6%) unemployment rate has taken the headlines,” said Mr. Hartwig, clinical associate professor of finance at the Darla Moore School of Business, University of South Carolina in Columbia, South Carolina. Those most recent figures were released by the U.S. Bureau of Labor statistics this month.
Increases in minimum wage will also affect the industry, Mr. Hartwig told attendees. As of 2019, 22 states have increased minimum wage, along with a several individual cities.
“This economic recovery is pulling in people from every socioeconomic group,” he said, adding that roughly 2.1% of workers are making the federal minimum wage of $7.25 an hour, with most workers seeing salaries and hourly wages increase year after year since the economic downturn that peaked in 2009.
“This is literally hundreds of billions of payroll dollars and hundreds of millions of workers comp premium,” he said.
However, the lack of infrastructure spending and a possible trade war with China could spell bad news for the comp industry looking forward, he said.
Federal proposals to spend upwards of $2 trillion on infrastructure in the United States — projects that would benefit property and casualty insurers — are “dead,” he said, adding that a back-and-forth tariff war with China — making headlines this week as both sides announced new tariffs on imports — could result in job losses to the tune of 2.2 million U.S. jobs in one to three years, he said.
An unemployment rate below 4% nationwide and projected job growth of just under 2% for 2018 are just two factors that could impact the workers compensation sector, according to a second-quarter economic impact report issued Wednesday by the National Council for Compensation Insurance.