Opportunities Exist In W.C. Market

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Agents and brokers looking for the “sweet spots” andunderwriters looking to minimize risks in the workers' compensationmarket should use marketing principles and look at parts, ratherthan the whole, according to an expert at the 58th Annual WorkersCompensation Educational Conference here.

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The conference is a partnership between The Florida WorkersCompensation Institute Inc. and The National UnderwriterCompany.

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“I can imagine how difficult it is for actuaries to set rateswhen there's a [timing] gap,” said Armond Benoit, president ofMarketStance in Middletown, Conn, referring to the fact thatactuaries may be looking to predict loss trends for as much as fiveyears ahead based on current information.

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He likened the situation to that of an investor that invested inEnron before its collapse, where available information did notindicate its pending demise.

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In addition, he said, the trend for workers loss experienceoverall, across all industries, can be going down, while the actualexperience in some industries is going upward, he said.

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“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.

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Mr. Benoit advised to focus on the construction industry andsome key characteristics in order to react to opportunities andminimize risk.

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“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.”

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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.

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The addition of manufacturing ups the total premium dollarsrepresented to 35 percent, he noted.

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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.

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“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.”

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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.

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The key driver of workers comp results in construction, he said,“is the economic volatility of this industry.”

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

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“This is important because 20 years ago when the constructionindustry had major swings it was buffeted by the manufacturingindustry, which was more stable,” he said. In other words, themanufacturing results for workers comp diluted the impact of theconstruction industry on overall comp trends. “Now with employmentdown in the manufacturing industry, any major swings in theconstruction industry have a big impact.”

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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.

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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.

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

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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:

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Small firms don't always have the right loss control

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

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Often there is more overtime in these industries and again thiscan cause problems.

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

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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.

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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.”

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“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.

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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.”

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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.


Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, August 25, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.


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