By Daniel Hays
Workers’ compensation insurance profitability is at its best level in years, with the 2004 calendar year combined ratio dropping four points to 105, the National Council on Compensation Insurance reported at its annual conference here.
NCCI said it is cautiously optimistic for the year ahead, although the group is worried about medical costs that continue to soar for injured workers, as well as mediocre stock performance and low interest rates that limit insurer combined ratio improvement.
The Boca Raton, Fla.-based industry services organization also voiced doubts concerning Congressional efforts to renew the Terrorism Risk Insurance Act. NCCI noted workers’ comp polices that became effective this year have some exposure because they extend beyond TRIA’s scheduled Dec.31 expiration.
Other positive news from NCCI included the fact that the combined ratio, based on accident year, is at 94–its best level in more than a decade. Also improved is the industry loss reserve picture–NCCI said the deficiency in that area had dropped to $12 billion from nearly $15 billion.
When discounting is done for lifetime pension cases, NCCI said that the deficiency is lowered even further–to $7 billion.
NCCI found that the volume of business in the residual market in the last several months has shown indications of some declines in larger policy business, but the group said volume in the markets of last resort among the states it deals with are still at “uncomforably high levels”–running about 13 percent of the total workers’ comp market in some states.
NCCI said that workers’ comp premium volume had increased for the fifth-straight year, rising about 9.5 percent to $46 billion in 2004 for the entire market, including state funds. Private carriers alone improved premium volume by nearly 11 percent last year, the group noted.
As it has since the beginning of the 1990s, the frequency of lost-time claims in states monitored by NCCI declined again–dropping by 3.4 percent.
The costs for medical treatment of injured workers continues to vex the industry, according to NCCI, which noted that such expenses now make up 57 percent of total losses. Health care costs for workers’ comp carriers last year jumped 10.5 percent over 2003 levels.
“The point from which we are starting the year is certainly better than it was just a few short years ago,” said NCCI’s chief actuary, Dennis Mealy, in an announcement of the results before he briefed meeting participants. He cautioned, however, that insurers will need continued improvement in underwriting results to offset lowering investment returns for insurance companies.
The NCCI operates in 35 states. California is not among them.
Flag: By The Numbers
Key WC Results
o 105–2004 calendar year combined ratio, down four points from 2003.
o 94–Accident year combined ratio, its best level in over a decade.
o $12 Billion–Loss reserve deficiency, down from nearly $15 billion.
o 9.5%–Premium volume increase, to $46 billion.
o 3.4%–Drop in frequency of lost-time claims.
o 10.5%–Jump in workers’ comp medical costs.