Marsh has launched a Workers' Compensation Center of Excellence, which brings all of the broker's Workers' Comp insurance and risk-management capabilities under one umbrella, including advanced analytics and modeling, claims management and advocacy, and insurance-program design and placement. Jonathan Zaffino, Marsh's Casualty Practice Leader, talks with NU about this program, the state of the WC market and some steps to reducing costs.
What was the impetus of the Workers' Compensation Center of Excellence program, and how does it benefit clients?
Our primary motivation was to harness Marsh's full toolkit so that we can deliver the widest possible scope of strategies and solutions to our clients in a customized and coordinated manner to help reduce their total cost of risk.
The fundamental benefit to our clients with this approach is that they will work with specialists who are armed with a full suite of solutions that can complement their current strategies while attacking specific loss drivers using our industry-leading analytic capabilities.
How would you characterize the current rate environment in the Workers' Comp market? Are we seeing a true hardening market in this sector?
I would characterize the market as more "tentative" than hard at this point. Insurers are looking to increase rates, but those increases are inconsistent and based on a number of different factors, including industry, geography, concentration of risk, loss-mitigation techniques, historical loss experience and program structure.
For the last three years, Workers' Comp has led all commercial lines with the highest combined ratio, according to the National Council on Compensation Insurance. The 115 percent combined ratio posted by private Workers' Comp writers in 2011 is the worst the industry has experienced since 2001.
In addition to poor historical underwriting results, reserve adequacy remains a concern for the industry, and average indemnity and medical costs continue to rise. All of [those factors], against the backdrop of a continued low-yielding interest-rate environment and sluggish macro-economic conditions, paint a relatively difficult picture for the Workers' Comp market.
With all of that said, there remains ample capacity for most Workers' Comp programs.
What are some of the steps clients should take when exploring a more integrated approach to managing and reducing the total cost of Workers' Comp risk?
It really all begins with establishing a customized road map to address the specific loss drivers within an organization's Workers' Comp program. This road map should be the byproduct of a deep analytical analysis that examines a number of different elements including:
- Identifying the company's unique Workers' Comp cost drivers and focusing on how best to reduce them;
- Reviewing how the company's actual loss performance compares to that of its peers (e.g. average paid losses, incurred reserves, closure rates, etc.) and various other benchmarks to determine above- and below-average loss characteristics;
- Estimating future losses, and the volatility of those expected losses, at various levels to optimize program structure and risk-financing techniques; and
- Identifying claims and workplace-safety management inefficiencies and redundancies to improve the working environment for employees.
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