Hartwig Says Comp Market Good, But Costs Will Rise

Workers' comp, "a once disastrous line, is now making a healthy profit," he said. Workers' comp went from paying out $1.22 for every dollar earned, "all the way down to about 97 cents to the dollar in 2006," he said. "That means this line has been nursed back to health through some of the most difficult times this industry has ever faced, not just in workers' comp, but throughout the property and casualty insurance world."

In the industry, he said workers' comp, the second largest of all commercial lines, contributes mightily to overall industry improvements.

In fact, he said, last year the property-casualty insurance industry had its lowest combined ratio since 1949, with 25 points lopped off the industry's combined ratio in just five years. "These remarkable results could not have been achieved without workers' comp," he emphasized.

Profitability in the workers' comp line, he said, has picked up from its near record low in 2001 of almost minus-8 percent, to 13.5 percent this year.

He pointed out, however, that the industry has been criticized for earning $64 billion in net income, which it is on track to earn this year, assuming no major cataclysm befalls the industry.

Mr. Hartwig added that "it is important for those in the workers' comp world to defend their ability, right and need to earn a reasonable rate of return." He said it is also important to defend the fact that workers' comp earnings and profits cannot be used to subsidize, for instance, large-scale property losses in other states.

He commended those in the workers' comp industry for their achievements "at a time when insurers are being attacked by politicians in some states and at the federal level."

Most importantly, Mr. Hartwig said, workers' comp is not just about the money. "You can point to some of the most extraordinary achievements in any industry. You can say that you helped to save lives, that you helped prevent injuries."

He pointed out that fatally injured workers cause an average of 5,850 lost future work days, and that permanently disabling injuries can mean an average of 565 lost work days.

Reducing injuries, he noted, can greatly impact the quality of life for a family because seriously injured workers have average lower lifetime earnings; a greater likelihood of filing for bankruptcy; are more likely to need public assistance; and are more likely to experience divorce, substance abuse and depression.

The good news, he said, is that lost-time claim frequency is down more than 50 percent since 1991, and that fatal work injuries continue to drop–from 6,632 in 1994 to 5,703 in 2006. Since 1995, in fact, 15,000 lives have been saved.

He noted that most work-related fatalities are due to highway accidents and incidents, and that the rate of homicides in the work place is down.

Mr. Hartwig said that while the workers' comp market will continue to perform well, operating results and profitability erosion is beginning now. He said erosion will probably continue for the next four to five years.

While competition in the workers' comp market is more intense than it has been at any time in the last 15 years, he pointed out this is "good news; it's a sign of a healthy market."

He added, however, that "threats abound, as pressure is building in a number of areas." Some of those concerns are operational, demographic and regulatory, he said, adding that a major worry is medical costs. Workers' comp medical severity rose more than twice as fast as the medical cost per incident (CPI)–8.8 percent versus 4 percent from 1995 through 2006, Mr. Hartwig said.