ORLANDO, FLA.--The workers' compensation insurance market may be encouraged by declining claims frequency and legal reforms, but rising medical costs and a down economy are cause for concern, an expert told an industry conference here.

Neal S. Wolin, president and chief operating officer of The Hartford's property-casualty operations, gave that assessment during a keynote speech at the Workers' Compensation Educational Conference (WCEC), run by the Florida Workers' Compensation Institute.

Mr. Wolin said the impact of risk management efforts by insurers and companies that have led to frequency declines may be nearing the point of exhaustion.

If that is the case, Mr. Wolin said the rate of frequency decline may not be enough to offset the rising severity or cost of claims.

Speaking to severity, Mr. Wolin said medical costs are driving some of the increase, and he cited hospital and surgery-related costs as examples.

There are indications that severity rates may level off some in the near future, Mr. Wolin said, but there are also some less encouraging trends as well. For example, Mr. Wolin cited the use of generic drugs as a measure that has helped to control prices, but he also said drug utilization is up, which poses a challenge.

The depth and duration of the economic downturn will also have a major impact on the workers' comp market, Mr. Wolin said, as the current environment has led to negative premium growth in 2008 and has also impacted investment returns.

While many in the industry are concerned with workers filing more claims because of the economy, Mr. Wolin said he has not seen this yet.

While he noted that The Hartford is keeping an eye out for an economically related increase, he said the company has actually seen the opposite.

Mr. Wolin speculated that companies cutting payrolls may keep more experienced employees who are less likely to file claims, and also that employees may not want to miss work and jeopardize their standing with the company during challenging economic times.

The aging workforce could also impact workers' comp results, though Mr. Wolin said it was unclear what exactly the effect will be.

Older workers, he noted, tend to file less claims. However, the length and severity of claims filed by the workers is generally greater, and they also require different treatments.

Mr. Wolin cited obesity as a major cause for concern for comp insurers.

He noted that in 1990, no single state had over 15 percent of its population considered obese. In 2006, half of the states in the country had over 25 percent of the population considered obese. The implications of this, he said, are considerable, as obese individuals file twice as many claims, account for high medical costs, and miss many more work days than other workers.

Mr. Wolin said that, overall, he is "cautiously optimistic" about the workers' comp market. A large part of the industry's success, he said, will be carriers' ability to remain disciplined despite recent profitability and top line pressures.

"Workers' comp is a long-tail line, and it's absolutely critical that the industry keep its eye on the ball and remain disciplined," said Mr. Wolin.

He also spoke highly of reforms instituted in California and Florida, and said he would like to see more states take up similar initiatives.

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