Workers' Compensation insurers are benefitting from the continued growth in private-sector hiring and payroll over the past few years, but there is concern about a few dark clouds of economic uncertainty looming on the horizon.

Many attendees at the recent Workers' Compensation Educational Conference in Orlando were of two minds when it came to the prospects for growth in premiums and profits in 2013, both in terms of the P&C insurance market in general and the Workers' Comp market in particular.

I found general agreement that while the economic recovery appears to be losing steam, millions have returned to work since the financial crisis at the end of 2008 decimated the job market. That means many more insurable exposures for comp carriers, as well as more premiums written.

In particular, there was a lot of buzz about how many manufacturing jobs have returned to theUnited States(thanks in part to costs rising in foreign locales) and how overall activity is up in the construction industry. Both of these job categories pose bigger hazards, pay higher salaries and produce larger premium targets for Workers' Comp insurers.

On the downside, manufacturing employment hasn't rebounded as much as Workers' Comp insurers might have hoped thanks to increased productivity and increased automation, along with employers who are reluctant to commit to hiring more people until they see whether the sputtering economic recovery will regain momentum.

Indeed, there was some concern expressed by Workers' Comp insurers at the conference that until employers are sure the economy is coming back strong, many are calling on their current personnel to put in additional overtime before they commit to hiring more workers. Longer hours might mean more workers growing fatigued on the job, perhaps prompting an increase in the number of injuries. This isn't an idle fear, as many speakers pointed out that claims frequency in Workers' Comp was actually up for the first time in about two decades.

And while the private-sector construction market is growing, insurers fear employment gains may be offset by cuts in public-sector spending as state and local governments postpone work on roads, bridges and other infrastructure projects to close budget gaps.

On the positive side, filings for business bankruptcies are falling while business launches are on the rise, meaning Workers' Comp carriers are keeping more business on the books while having additional exposures to insure.

On the negative side, however, a number of attendees and speakers are worried about the growing number of people who have been out of work for six months or longer. When (if?) they eventually get a new job, will the skills of these long-dormant workers be atrophied? Will the frequency and severity of claims rise as a result?

There were also red flags raised about whether companies under pressure in the slow economy might be reducing costs by cutting back on loss-control, safety and risk-management budgets, which could result in a rise in claims frequency.

A big concern expressed at the conference focused on the rise in obesity and the impact that trend could have on Workers' Comp claims among employees who suffer from diabetes, high blood pressure, heart issues and other physical problems as a result. Some of these health claims are likely to spill over into Workers' Comp, carriers fear.

The aging of the work force was also frequently raised as a major concern. Older workers tend to be more experienced and savvy about safety, so frequency is usually less of an issue. But it often takes older claimants longer to return to work and requires more medical care for them to recover, driving up severity costs for Workers' Comp carriers.

Of course, one of the hottest topics at the conference was how the health-insurance-reform law would impact Workers' Comp costs, now that the U.S. Supreme Court has given the green light for most of the program to proceed as planned.

On the one hand, with millions more having health insurance, there might be less temptation to file fraudulent Workers' Comp claims to get needed medical care, while providers may be less likely to shift costs for the uninsured onto comp bills. And in the long run, if newly insured people are better able to afford to see a doctor, we may see earlier diagnoses and treatments, resulting in a healthier work force as well as lower medical costs down the road.

However, on the other hand, with millions of newly insured people lining up for medical care, such heightened demand could put a supply strain on the medical community, driving up provider charges and making the availability of doctors and diagnostic services problematic. This could be particularly challenging for Workers' Comp insurers, which usually seek aggressive treatment and rehabilitation regimens to get claimants back to work more quickly.

Last but certainly not least, the threat of seeing the country go off the so-called “fiscal cliff” on Jan. 1, 2013 was much on the minds of Workers' Comp insurers at the conference. If income-tax cuts are allowed to expire while payroll taxes are restored to their full level and the federal budget is automatically cut across the board, the economy could be pushed back into recession in a hurry, leading to layoffs and exposure contraction for Workers' Comp and other P&C carriers. Indeed, many were concerned that uncertainties surrounding the political and economic environment may have already held back private-sector (and insurer) growth.

For the moment, however, Workers' Comp insurers speaking with me inOrlandosounded cautiously optimistic about continued growth—both for the economy and their own lines of business—into 2013 and beyond.

Time will tell.

Special Reports /

WC Insurers Cautiously Bullish About Economic Growth

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