NU Online News Service, Aug.19, 1:15 p.m. EDT

ORLANDO, FLA.--The outlook for the workers' compensation marketplace is a mix of good and bad, according to experts with knowledge of different sectors of the industry.

They gave their views during a panel session yesterday at the Workers Compensation Educational Conference, presented by the Florida Workers' Compensation Institute in partnership with The National Underwriter Company.

Those making presentations included: Jeff Eddinger, ratemaking practice leader and senior actuary at the National Council On Compensation Insurance; Robert P. Hartwig, president of the Insurance Information Institute; and Jeff Lee, vice president of pharmacy operations for PMSI.

With a 2008 calendar-year combined ratio for comp insurers of 101, Mr. Eddinger said results are "pretty good" and there is a healthy voluntary market. Investment results are down, however, and the market is under pressure as a result, he said.

Mr. Lee said businesses could work to control the surge in drug treatment costs by working with pharmacy benefits managers to contain them, and that a recent lawsuit settlement should have a lowering effect on costs.

Mr. Hartwig warned that the economy is eating into the exposure base of the industry and "results will deteriorate if rates continue to deteriorate."

The data and details of Mr. Hartwig's talk are online at http://www.iii.org/Presentations/WCEC081809/ .

On the topic of rates, moderator Robert Purdy, senior vice president of ACE Casualty Risk, quoted the remarks of an insurance executive who once likened insurers' promises of price discipline to a drunk who swears off drinking until he gets to the next saloon.

"If you're not staying true to underwriting discipline, you're in trouble," he commented.

Mr. Eddinger said comp insurers can deviate below approved rates and they did so in the soft market of the late 1990s.

"Will discounting fall to the late-90s level?" he wondered.

He said wage replacement costs are now more in line with wages, and medical cost increases are still above the Consumer Price Index, but not as much as in the past.

He noted that NCCI studies show that lost-time claims have fallen in almost every recession.

Mr. Eddinger noted that the comp residual insurance market's combined ratio, which reached 170 in the 1990s, is now in the 110-to-115 range, and its market share has declined dramatically from the 90s when it stood at 100 percent in some states.

While the recession appears to have ended, Mr. Hartwig predicted it will take a long time for the economy to make a full recovery and that it won't be until 2011 that the job market will be back.

He noted that for comp insurers investment income is very important because they have so many long-tailed claims, adding that investment income for the property and casualty insurance industry overall was down to $31.4 billion last year compared with $64 billion in 2007. Insurers are now getting less investment returns from a larger portfolio, he added.

Mr. Lee said that total pharmacy spend for workers' comp increased 5.4 percent last year, up from 3.3 percent in 2007.

One driver was a court patent ruling protecting heavily prescribed Oxycontin drugs from being issued in generic form.

He said Oxycontin accounts for 93 cents out of every $100 of workers' comp spent on pharmacy costs.

Because of another legal action that resulted in a settlement of a case brought by the carpenters union, Mr. Lee said that the method price index publishers use to calculate average wholesale price of drugs will be changed and they will be revised downward.

He said that his firm calculates this will result in a rollback on average workers' comp pharmaceutical prices of 3.2-to-3.9 percent.

Mr. Purdy asked the panelists when they expected medical costs to level off, and Mr. Hartwig predicted this would happen in 2012. Mr. Lee said 2013, while Mr. Eddinger replied, "When hell freezes over."

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