Workers' Comp Renewals Take A Hike

"Its not pretty," commented John Clark, special lines manager at Thompson Insurance Enterprises in Atlanta, the brokerage trading as Thomco.

Mr. Clark said the brokerage is seeing carriers dropping coverage of "anything with any kind of hazards." Among the industries he mentioned with difficulty securing coverage are trucking, assisted living operations and day care centers.

Insurers, he said, are asking for 15-to-20 percent increases, "and they dont want us writing new policies."

Mr. Clark, with, perhaps a touch of hyperbole, complained, "were almost shut down." Carriers, he said, have tightened all of their underwriting guidelines, prompting his prediction that "the assigned risk plans are going to get repopulated."

While the hardening of the market was already well underway before the terrorist attacks, he noted, the Sept. 11 losses will make it even more difficult to place coverage.

Robert Smith, chief operating officer of Willis Risk Solutions in New York, said he believed there would be a definite impact on renewals from the World Trade Center attack losses.

Referring to market pricing, he said, "everything was headed north, and after what happened in New York [prices] will head further north." He added that "inadequate rates that were beginning to increase will increase faster and move higher than before [Sept. 11]."

According to Mr. Smiths assessment, big insurers that have to cover large losses will have lowered surpluses, and as a result workers comp subsidiary operations will be affected.

"In order to stay in business they will have to get premium increases to support each line individually," he said. "Many companies in the past have written workers compensation at a loss. I dont think anything will be written at a loss in the foreseeable future."

In states where regulators have been unwilling to yield to industry requests for increases in workers comp rates, carriers might reach a point where they halt writing coverage in those jurisdictions, warned Mr. Smith. Some writers, he said, have already called a moratorium on workers comp coverage.

Additionally, Mr. Smith said that some large insurers have burned through their reinsurance, and as they struggle to reinstate their coverage treaties, their workers comp operations "will be an indirect hit."

The workers comp market will be increasingly pricey for employers, not because of any exposure to terrorism, but because of the blows "carriers have taken on their book overall. They need to find a way to make up for that," said Tonya Hollederer, a broker for Russell Bond & Company, a wholesale intermediary in Buffalo, N.Y. She said that carriers might look more closely at "where they have a large group, where before they never thought of a multi-exposure in a large office."

Her firms activities include securing workers comp coverage for the self-insured market. In the past three years, when writing insurance for self-insured trusts, quotes were available to applicants that provided only payroll and loss information, she noted. "Now, they want a lot more information–actuarial studies, financial reports, trust agreements, bylaws. The underwriting is a lot more stringent than it was two or three months ago," Ms. Hollederer related.

At the same time, she said, insurers are demanding that insureds assume more of the risk. For a client that she could have placed in the past where the retention level was $500,000, "now most insurers are looking for $1 million on certain classes," she said.

Insurers, she reported, are also making it more difficult to obtain aggregate coverage that attaches when a certain percentage of losses are reached. In the past, where coverage would kick in when an insured reached 100 percent of estimated losses, insurers now want attachment points of 125 or 150 percent, Ms. Hollederer said.

Like Mr. Clark, Ms. Hollederer has seen a tightening for certain classes of business viewed as having a heavy exposure. Among other sectors, she mentioned nursing homes, hospitals, contractors, and other businesses with height exposures.

She said increases for policy renewals are running 10-to-20 percent at a minimum. "Im looking at one expiring at $25,000 and the renewal quotes at $35,000," Ms Hollederer related.

Bob Meyer, a principal in the New York office of Milliman USA, an actuarial consulting firm, said the industry has been surprised "at how poor their 2001 results are going to be given that they entered last January with some significant rate increases. In some cases renewals were in excess of 50 percent."

Workers comp insurers failed to anticipate a spike in medical costs driven by prescription drug prices, he said, predicting that premium increases will be "in double digits and may actually reach 30-to-40 percent."

Peter M. Burton, senior division executive for state relations at the Boca Raton, Fla.-based National Council on Compensation Insurance, said that in making loss-cost filings for the states that NCCI serves as a statistical agent, "more than half are for decreases." He said the recommendations reflect a continuing low injury rate. Carriers put their own expense and profit factors on the NCCI loss cost figure.

Comparing the first half of this year with the first half of 2000, Mr. Burton said that applications to the residual markets are up 36 percent.

Bruce Guthart, president of U.S. operations for Hub Internationals New York brokerage office, said that carriers, besides asking double-digit renewal increases, are showing a reluctance to provide dividend plans for middle-market customers.

Stephen A. Crane, chairman and chief executive officer of Stirling Cooke Brown, a Bermuda brokerage, said that in states that allow variations, rates will go up, while states that set fixed rates would see a hard market with lower scheduled credits being offered.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 22, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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