Many industries go through cycles of growth and decline, with the insurance industry — and the workers' compensation line of business, in particular — clearly falling into this pattern. Strong insurers, agents, and employers don't just live through these cycles; they look for the lessons inherent in any pattern and use them to prepare for the future.
For the past 30 years, the workers' compensation line has followed a 10 – 12-year growth and profit cycle, and at the bottom of each cycle, they all look bad. Moreover, it seems that cycles of the past never look as difficult as the one currently being experienced. Historically, each “down” is followed by an “up” that brings a new set of lessons and benefits to those willing to look and learn.
Workers' compensation cycles occur as medical and legal costs rise, new industries introduce new risk patterns, and court or administrative decisions broaden exposures and increase costs beyond what was expected when premium rates were originally set. Rising loss costs ultimately push rates upward until employers, who bear workers' compensation costs, band together to demand relief. Typically, the legislature reacts by enacting reforms, and rate relief occurs — until the next turn of the cycle.
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