Workers' Comp Risk Issues Emerging

NEW YORK--While presenting a generally rosy forecast of underwriting profitability for the property-casualty industry, the president of the Insurance Information Institute said he has growing concerns about the workers' compensation line.

Speaking at a meeting of the Casualty Actuaries of Greater New York here on Thursday, Robert P. Hartwig, president of New York-based I.I.I., suggested that if recent occupational disease studies have merit, the trends they reveal could impact insurer results going forward.

"I am concerned about latent disease," Mr. Hartwig said, referring to cancers or lung disorders developing in workers many years after they complete their jobs.

"There's an emerging literature on degenerative neurological diseases associated with occupation," he added, noting, for example, that Parkinson's disease is highly correlated with people who have certain occupations. He added that a soon-to-be-released study by the World Health Organization will show "that people who work the graveyard shift are more likely to get cancer."

Mr. Hartwig discussed the emerging issues after describing the dramatic improvement in workers' comp calendar-year combined ratios in recent years. Since 2001, when the National Council of Compensation Insurance reported an unprofitable 122 combined ratio, insurer fortunes have reversed, with the ratio dropping to 90.5 in 2006.

Noting the workers' comp improvement contributed to the 23.4-point drop in combined ratio for all commercial lines--from 115.8 in 2001 to 92.4 in 2006--Mr. Hartwig said an improvement of this magnitude is unprecedented in commercial lines over a five-year period. It has never happened in the history of the industry going back over 100 years of statistics, he added.

A key factor contributing to the workers' comp decline, Mr. Hartwig observed, has been the steady decline in the frequency of lost-time claims (claims from worker's injuries that keep them away from their jobs and result in wage-loss benefits being paid by workers' comp insurers).

The number of lost time claims has dropped by more than half--52.1 percent since 1991--with drops of 6.6 and 6.8 in 2005 and 2006 respectively, Mr. Hartwig noted.

On the other hand, the cost of these claims has risen, he said, pointing out that indemnity costs for lost-time claims have doubled since 1993.

Also of concern is the rising share of medical costs in the workers' comp insurance system, he said, noting that the medical percentage rose from 45 percent in mid-1980s to nearly 60 percent in 2006.

"That means workers' comp has become first and foremost a health care delivery system, and that comes with a lot of problems," he commented.