Authored by NCCI Holdings, Inc. President and CEO Stephen J. Klingel, the April 2011 report noted “continuing unease regarding market conditions,” an incongruity given that the overall property and casualty insurance industry has” largely out-performed other sectors of the economy during the economic downturn.”
Why the disconnect? NCCI stated that close scrutiny of the workers’ compensation product line alone shows a pattern of “significant deterioration,” and cited a number of factors:
- After very minor underwriting losses in 2007 and 2008, the combined ratio for workers’ compensation (private carriers) shot up nine points in 2009—the largest single year increase since the mid-1980s.
- Deteriorating underwriting results, combined with a record low interest rate environment, left the line in an only slightly better-than-break-even position after investment income is considered.
- Calendar year net written premium declined precipitously in 2009 for both private carriers and the state funds.
- The recessionary impact, particularly on manufacturing and contracting, along with price decreases, took its toll on industry net written premium, which declined 23 percent over two years. More than 40 percent of workers’ compensation premium is generated by manufacturing and contracting, even though only about 20 percent of the workers are employed in those industry groups.
- Countrywide frequency declines persisted in 2009, continuing the long trend downward and becoming somewhat more negative as the recession deepened.
- Workers’ compensation insurance prices continued their declines in 2009 in most jurisdictions.
- Combining the underwriting loss with the investment gains, the result is a pre-tax operating gain of 1.6 percent, the worst result since the 0.9 percent gain of 2003.
NCCI also noted that the “continued uncertainty regarding the national health care reform law” is contributing to the ambiguity and unease surrounding the industry.
While labeling the outlook for a strong recovery this year as “guarded,” NCCI did find some good news to report:
- During the first half of 2010, employment and payrolls stabilized with some limited increases, especially in the high premium manufacturing sector.
- Preliminary signs indicate that the fall in workers’ compensation premium may have slowed by the third quarter of 2010.
- The investment gains associated with workers’ compensation insurance transactions increased a bit during 2009, to 11.8 percent. The ratio has been hovering between 10-12 percent for the last several years.
- The residual market continues to shrink.
- The frequency of lost-time claims per 100,000 workers declined an estimated 4 percent in 2009.
The Government Factor
Workers’ compensation is highly regulated, and therefore susceptible to shifts in state and national politics. However, the past few years have been relatively quiet on the legislative front, given lawmakers preoccupation with economic issues.
That may be changing.
Moving further into 2011, as the 2010 political winners take control, NCCI anticipates “a more active year, with new reforms proposed in states such as Illinois, Kansas, Maine, Montana, and Oklahoma.”
On the national level, NCCI noted that the industry should continue to monitor the agendas of the new leadership in the House of Representatives, the continued development of the Federal Insurance Office, and the plans of the Office of Health and Human Services to administer new rules and guidelines. Also on the watch list are the evolving Medicare reporting requirements and review procedures, the continued development of financial regulatory reform, and Republicans’ efforts to reform or repeal the national health care law. Any or all of these initiatives may produce significant spill-over into the workers’ compensation arena.
NCCI will discuss the report and present additional data at its Annual Issues Symposium 2011 on May 5-6 in Orlando.