Sagging Economy Would Impact Workers' Comp

ORLANDO, FLA.--The nation's economic growth may decrease as the year progresses, but that might not be all bad for the workers' compensation insurance sector, a macro-economist contends.

Steven Wood, the chief economist for Insight Economics LLC of Danville, Calif., made that observation in an interview prior to his appearance here yesterday at the National Council on Compensation Insurance Annual Issues Seminar.

Despite strong economic growth activity, Mr. Wood said he suspects we will be in for a weaker second half. "Employment gains are likely to slow a bit, and inflation is likely to be a little bit higher," he projected.

Of particular interest to workers' comp insurers is the fact that Mr. Wood expects "a change in the composition of employment, with fewer manufacturing jobs and a retreat in construction jobs as the housing market slows."

On top of this, Mr. Wood said to expect "a pretty sharp acceleration" in medical care cost inflation in the next four or five years. No matter how fast health care expenses seem to be climbing now, it will be worse in five years, he predicted.

The implications for the workers' comp sector, Mr. Wood said, are that with a reduction in manufacturing and construction jobs there should be fewer claims because "those two industries have a higher proportion of them. That's good news."

On the other hand, the economist said that even though hiring levels may decrease, there will be pressure to push up wages. Since lost-time comp benefits are based on injured workers' salaries, that factor will push up claim costs, he said.

Mr. Wood also advised that "if there is a sharp acceleration in health care costs, that's going to continue to put pressure on premiums."

Asked for his advice on the workers' comp market, he said that "if you're talking health care costs, we need to reform the health care system in this country. We spend more than any other country, but don't get better care than any other country."

In the short run, said Mr. Wood, "there is not much we can do, but in the long run we can put pressure on Congress and the [Bush] administration to think seriously about what kind of health care system we are going to have."