WC Prices To Keep Rising, Experts Warn

Orlando, Fla.

Risk managers should expect higher prices for workers' compensation insurance coverage for at least another year, a panel of experts warned here.

For insurers, that was the good news. But the experts also noted a variety of trouble areas lie ahead for carriers.

The forecasts came during a panel discussion on the state of the market at the annual Florida Workers Compensation Educational Conference, sponsored by the Florida Workers Compensation Institute, in partnership on a national track with The National Underwriter Company (parent company of this newsmagazine).

Fritz Yohn, president of IntelliStance, a Middletown, Conn.-based market analysis firm, expects to see pricing continue to firm while a 1995-97 surge in workers' comp exposures continues to impact reserving for prior-year occurrences. He also said that the increases in workers comp prices have outpaced other commercial insurance lines.

Robert Purdy, vice president of specialty workers comp for American International Group's Philadelphia office, said that, in his opinion, there is at least another year of increased pricing ahead.

Mr. Purdy said one factor allowing insurers to sustain price levels is the fact that some competitors in the workers comp market are having difficulties with rating organizations that are issuing and threatening downgrades. The fact that more carriers were put on a negative watch “will sustain the market,” he said.

Robert G. Blanco, head actuary for the National Council on Compensation Insurance in Boca Raton, Fla., said that in states for which NCCI is the statistical rating agent, the average net rate of workers comp price increases was 3.5 percent in 2000. He said most insurers were not boosting rates for their good, established clients. Instead, it was new business that saw the biggest increases, he said.

While noting that rate increases have occurred this year as well, Mr. Blanco pointed out the still unprofitable underwriting results that were evident last year, with the workers' comp industry overall posting a combined ratio of 133 on an accident-year basis for 2000.

He also said that the industry had an overall reserve deficiency of $20 billion for workers' comp in 2000, based on NCCIs projections. “Reserves are getting more and more inadequate,” he added.

On a brighter note, he mentioned that loss frequency has been on a downtrend, offsetting a rise in claim costs.

Robert Hartwig, vice president and chief economist of the Insurance Information Institute in New York, said the property-casualty insurance sector is the “ugly duckling of the financial services industry.” However, with workers comp pricing now back on an upswing, he said that business is “on the mend, but its going to take awhile.”

He noted that even though workers comp rates have gone through a second year of double-digit increases, the general news media has paid little attention because costs for businesses are still “20 percent less than they were in the early 1990s.”

Mr. Hartwig noted that the stock market has reacted well, in general, to the property-casualty sector, bidding up p-c insurer stock prices 43 percent. “Were holding our own as the [overall stock] market is tumbling,” he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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WC Prices To Keep Rising, Experts Warn

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