In WC Market The Right Focus Equals Success

|

By Caroline McDonald

|

NU Online News Service, Aug. 22, 11:07 a.m. EDT,Orlando, Fla.? Agents, brokers and underwriters, who dealin workers' compensation insurance can maximize opportunity andlessen risk by carefully studying the business segments providing akey customer base, a consultant advised here.

|

Armond Benoit, president of MarketStance in Middletown, Conn.,made his recommendations at the 58th Annual Workers' CompensationEducational Conference presented by The Florida Workers'Compensation Institute Inc. and The National UnderwriterCompany.

|

"You're looking at all overall workers' comp premiums, but mypremise is that we ought to take a look at some key industries whenyou're looking at the opportunities and the impacts of workers'comp," he noted.

|

Mr. Benoit advised his audience to focus on the constructionindustry and some key characteristics in order to react toopportunities and minimize risk.

|

"In marketing school, one of the key things we learn issegmentation," he said. "And one of the things we don't do enoughof in the insurance industry is look at specific industries."

|

The construction industry, for example, comprises "10 percent oftotal businesses in the United States, but when you look at totalpremiums, because of the hazardous conditions within the industry,the construction industry actually represents 25 percent of totalpremiums throughout the United States," he explained.

|

The addition of manufacturing increases the total premiumdollars represented to 35 percent, he noted.

|

One reason why results for the construction industry are sovolatile is that the average policy is small, between $2,000 and$3,000, versus the average policy of about $17,000 formanufacturing.

|

"This means that the people in the construction industry don'thave any deductibles," he said. "Therefore, they are in the primarymarket for insurance. They don't have alternative risk premiums, sothe primary carriers have really borne most of the risk in thisindustry."

|

Though overall claim frequency is down, he said, in smallerconstruction companies with fewer than 10 employees, frequency is 2percent higher. As you move higher up the scale, to largerconstruction firms, frequency declines to about half that ofsmaller construction firms, he said.

|

The key driver of workers' comp results in construction, hesaid, "is the economic volatility of this industry."

|

For example, within the past four years new jobs were created inthe construction industry, while the manufacturing industry lostjobs.

|

He said 20 years ago when the construction industry had majorswings it was buffered by the manufacturing industry, which dilutedthe impact of the construction industry on overall comp trends."Now with employment down in the manufacturing industry, any majorswings in the construction industry have a big impact," hesaid.

|

The rapid growth in the construction industry can be segmentedby state, he said. States where construction is growing quicklywill have a higher frequency of claims, he said.

|

To illustrate this, he pointed out that even though overallclaim frequency is down, there are problems in California. One ofthe reasons is that the construction industry in the staterepresents more than 25 percent of total premiums.

|

"These are types of information you should look at," he said."This can apply to any industry segment."

|

He also pointed out that when there are upswings in the economy,small firms are created. This trend implies some other impacts forworkers' comp insurers to watch for:

|

? Small firms don't always have the right loss control

|

? A lot of employees don't have health insurance, therefore youcan have a situation of Monday morning accidents with thesefirms.

|

? Often there is more overtime in these industries, and againthis can cause problems.

|

? Often there is a reliance on inexperienced and younger, lesseducated workers.

|

Mr. Benoit said brokers looking to create programs shouldexamine particular industries in which they can, for example,improve loss control. "They can design packages and products forthese situations," he said.

|

Another factor is overtime statistics, he added. "You can lookat overtime by state and those states will have more losses thanstates that don't have as much overtime."

|

"For example, in Indiana overtime is decreasing. So if I werecreating workers' comp programs, I would certainly look at Indianaas a place to focus on," he said.

|

Mr. Benoit added that growth in the construction industry inworkers' comp is localized. In Florida, for example, "you'll seemarked differences in the construction industry within thestate."

|

Florida overall has a projected growth rate of more than 6.5percent in the construction industry. "So there is highopportunity, but with certain growth there is certain riskinvolved," he said.

|

Mr. Benoit took note of the difficulties that actuaries facewhen they must predict loss trends as much as five years aheadbased on current information.

|

He likened their situation to that of an investor that investedin Enron before its collapse, where available information did notindicate its pending demise.

Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader

  • All PropertyCasualty360.com news coverage, best practices, and in-depth analysis.
  • Educational webcasts, resources from industry leaders, and informative newsletters.
  • Other award-winning websites including BenefitsPRO.com and ThinkAdvisor.com.
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.