Continued Hard Market Forecast For Workers Comp

Orlando, Fla.

There is no immediate end in sight to high prices for workers compensation insurance, top insurance executives said during an industry conference last week.

The panelists speaking at the Workers Compensation Educational Conference also took up topics such as rising medical costs, a geographic focus on risks, new capital in the marketplace, and effects of terrorism.

Their remarks came at the annual meeting of the Florida Workers Compensation Institute, produced in partnership with The National Underwriter Company and the New York-based Risk and Insurance Management Society Inc. (The National Underwriter Company is the parent company of this newsmagazine.)

James Roberts, president of the specialty workers comp division of American International Group in Parsippany, N.J., said that barring unforeseen events, the hard market pricing conditions should continue through 2003.

Prices, he noted, are up 15-to-20 percent this year.

Gregory T. Doyle, executive vice president with reinsurance broker Guy Carpenter & Company Inc. in New York, said an earnings gap for insurers would continue to drive a hard market.

He said the recent arrival of new start-up companies that have infused the market with additional capital should not depress rates in the near term, because the recent arrivals have an expectation of high returns.

Negative factors in the marketplace for insurers include declining investments and bond yields, as well as the climb in medical costs, panelists said, with Mr. Roberts labeling the medical cost trend as a possible ticking bomb.

Kathleen Langner, senior vice president and worldwide workers comp practice leader for Chubb Corp., noted that spending on health care costs had gone up 6.9 percent in 2000.

Ms. Langner noted that a factor combining with higher medical costs is the aging of the work force, reporting that the level of workers at or above age 65 is approaching a 20 percent.

Treatment duration for injury is on the increase as well as more spillover from injuries provoked by off-the-job activities, panelists reported.

Ms. Langner said that group health care practitioners have been hard-pressed and are seeking to find people who can pay more by “tapping the workers compensation industry.”

In Ms. Langners view, workers comp insurers must be “more realistic about claim costs.”

She warned that some downsizing employers may be economizing in ways that impair their return-to-work programs.

Mr. Roberts noted the need for carriers to “triage” for potential catastrophes on a geographic basis.

He said AIG does not see any major workers comp risk coming from hurricanes as a result of geographic concentrations of workers. The company is focusing on exposure from earthquakes, but “we take terrorism more seriously than earthquakes,” he said.

During the session, which was moderated by Sam Friedman, editor-in-chief of National Underwriters property-casualty edition, panelists were asked whether the industry could sustain another blow from terrorism.

Ms. Langner responded that although another event could reveal that some firms lacked financial capacity, “the bigger impact would be psychological.”

“You would see people retreating from the industry,” she predicted.

Mr. Roberts said a key factor would be the reaction of the federal government and whether it would be willing “to bail out one carrier.”

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 26, 2002. Copyright 2002 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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Continued Hard Market Forecast For Workers Comp

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