The workers’ compensation insurance marketplace has been relatively tranquil over the last 5 to 10 years. During this period, legislative reforms in California and Florida precipitated rate decreases of up to 60 percent. Though not as dramatic, most other states have experienced decreased work comp costs along with an intensely competitive insurance marketplace. As we head into 2012, it appears the cycle is turning back toward increased costs and reduced capacity.
Insurance companies’ profits have eroded in the work comp arena for several years. Premiums are down due to the economic suppression and high unemployment rate, especially with their construction clients. Medical costs continue to explode as cost containment strategies are losing their punch. Adding to the mix of adverse conditions, investment income is down and multi-line insurance companies have been hammered by one of the worst years in decades for catastrophic property losses.
Many employers and their agents have allowed the soft and competitive marketplace to save them from ineffective or nonexistent loss prevention or mitigation practices. It didn’t seem to matter if an employer’s loss experience was poor because there was always another insurance company ready to take on the risk, often at a lower price. The story of 2012 will be the number of employers who experience an awakening and understanding that they have to pay their dues for past complacency.
It may be late, but it is still necessary for agents to take action. They should take the following steps:
Agents and employers must address the critical issue of exploding medical costs. You may ask, "What can agents and employers do to reduce medical costs in the work comp system?" The simple answer is plenty.
The first step is for employers stop abdicating all responsibility to the insurance company to "handle the claim" after an injury occurs. Employers need to carefully select their medical providers and either channel or "soft" channel their injured employees to them. They need to communicate with both the medical providers and the injured employee to support and achieve an expected duration of recovery.