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 panelof experts warned here.

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

The forecasts came during a panel discussion on the state of themarket at the annual Florida Workers Compensation EducationalConference, sponsored by the Florida Workers CompensationInstitute, in partnership on a national track with The NationalUnderwriter Company (parent company of this newsmagazine).

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

Robert Purdy, vice president of specialty workers comp forAmerican International Group's Philadelphia office, said that, inhis opinion, there is at least another year of increased pricingahead.

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

Robert G. Blanco, head actuary for the National Council onCompensation Insurance in Boca Raton, Fla., said that in states forwhich NCCI is the statistical rating agent, the average net rate ofworkers comp price increases was 3.5 percent in 2000. He said mostinsurers were not boosting rates for their good, establishedclients. Instead, it was new business that saw the biggestincreases, he said.

While noting that rate increases have occurred this year aswell, Mr. Blanco pointed out the still unprofitable underwritingresults that were evident last year, with the workers' compindustry overall posting a combined ratio of 133 on anaccident-year basis for 2000.

He also said that the industry had an overall reserve deficiencyof $20 billion for workers' comp in 2000, based on NCCIsprojections. “Reserves are getting more and more inadequate,” headded.

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

Robert Hartwig, vice president and chief economist of theInsurance Information Institute in New York, said theproperty-casualty insurance sector is the “ugly duckling of thefinancial services industry.” However, with workers comp pricingnow back on an upswing, he said that business is “on the mend, butits going to take awhile.”

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

Mr. Hartwig noted that the stock market has reacted well, ingeneral, to the property-casualty sector, bidding up p-c insurerstock prices 43 percent. “Were holding our own as the [overallstock] 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 theserial publication. All rights reserved.Copyright in this articleas an independent work may be held by the author.

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