This line of business has really always been a loser in my experience. Granted, I’ve only been in biz for 13 years, but the high premium sizes have unduly swayed underwriters.
My first job in insurance was at a medium sized, multi-line direct carrier. Every year, we renewed a $ 300,000 comp policy for an electrical contractor, and every year, the results were bad.
It is a difficult problem. In the area I write in there are a plethora of mono-line comp carriers. The commissions are too high, and the rates are too low. A carrier offering standard WC commission and actuarially-sound rates cannot compete in the marketplace, yet WC is the line where declining premium dollars is undesirable due to the tail on the claims.
Seems like a catch 22 until the market tightens substantially.
Dean said it: WHERE ARE THE REINSURERS? There are companies buried in year after year after year RED results, and are the reinsurance treaties going up in price?
I remember reinsurers telling me in 2004 that their number one problem and concern was Workers’ Compensation. Here we are six years later, and the reinsurers have not pushed rates on their treaties.
I suspect that there are several things going on that affect profitability. First, when times are tough and people expect to lose their jobs, being out on Worker’s Comp is not such a bad thing. Second, regulators are subject to great political pressure to keep rates low.
The economic effects of the recession account for only part of the problem. NCCI is working off of 2-3 year old data that is void of any meaningful relationship to stagnant state fee schedules on medical and medicare set asides that are plagueing comp cariers right now. NCCI rates must come up or we will see a 50% decline in monoline carriers in the next two years. Multiline carriers are insisting on inclusion of W/C in bops and paying much higher commissions than monoline. Monolines have the niche expertise that the industry can not due without on a go forward basis.
I’ve never figured this out. But every time the industry market hits the bottom, WC carriers come out of the woodwork. Other carriers, like Hartford, try to buy WC insurance galore. What gives?
Even a carrier like West Bend, buried in Work Comp problems. So they go and do what? Yes, the go and start up a WC division for tough to place WC. They raid United Heartland of their top people. HUH?
And you’re right, comp only carriers pay too much commission, and they price too cheap. But the previous poster is wrong about one thing. They are not all that smart. EBI gone. Virginia Surety gone. Illinois National gone. Fremont gone.
Other than Liberty Mutual, what WC expert company has been around longer than 10 years?
Because carriers are dazzled by the prospect of telephone numbers. The perfect storm: greed, stupidity, need for cashflow, “expert” underwriting systems that clever users learn to fluidly navigate, and lack of institutional memory.
All good points – I love each post – and wouldn’t the discussion be incomplete if we didn’t mention the reinsurers and their role? Apparently reinurers aren’t putting pressure to increase their rates when the treaty’s come up for renewal.
The medical cost inflation, the lack of healthcare insurance for many, the aging workforce, increased utilization as med professionals realize that they can do more procedures and older workers need more time to heal, and other demographics are all conspiring against profitability in this line.
I do not want to really get into a political debate on all this, but the states now are preventing adequate rate to be allowed, such as the second (third?) year in a row that CA has turned down the almost 30% requested rate increase; the fact that NV, which used to be responsible, has now decreased rates to non profitability, etc., so state regulation is only as good as the economic and therefore political pressure put on it.
If you go in the NCCI site and look at the LRs for all states, you will see that there are very few with ratios below 100%…and that data is 2008 date…
agree…this line of business is due for a big shake up…
There are few reinsurors who have significant placements in Comp. The lack of large CAT losses in the past two years on the property side has left them flush with cash to support “temporary” losses in Comp. The way this market is going, i doubt a double digit reinsurance rise would equate to any detectable rise in underlying Comp rates.
Possibly. The last market change from soft to hard was due to 9/11 and had nothing to do with the industry experience and everything to do with reinsurance rates reacting to a global crisis. The current market without reinsurance leading the rise will be happy to absord market share due to downgraded monoline carriers. Until the market and economy are churning again, the flow of capital into reinsurors will not abate as they are giving investors better returns than the AAA rated corporate bonds and long term treasury notes where big money usually sleeps. We had one of the most severe outlooks for CAT losses in years and sofar have nad nothing to speak of from the Atlantic hurricane season. Barring a rainy season earthquake in California, the CAT season will be a bust and reinsurors will again post $10B in additional capacity gains due to net incomes.
This line of business has really always been a loser in my experience. Granted, I’ve only been in biz for 13 years, but the high premium sizes have unduly swayed underwriters.
My first job in insurance was at a medium sized, multi-line direct carrier. Every year, we renewed a $ 300,000 comp policy for an electrical contractor, and every year, the results were bad.
It is a difficult problem. In the area I write in there are a plethora of mono-line comp carriers. The commissions are too high, and the rates are too low. A carrier offering standard WC commission and actuarially-sound rates cannot compete in the marketplace, yet WC is the line where declining premium dollars is undesirable due to the tail on the claims.
Seems like a catch 22 until the market tightens substantially.
Dean said it: WHERE ARE THE REINSURERS? There are companies buried in year after year after year RED results, and are the reinsurance treaties going up in price?
I remember reinsurers telling me in 2004 that their number one problem and concern was Workers’ Compensation. Here we are six years later, and the reinsurers have not pushed rates on their treaties.
What is up with that?
Didn’t NCCI project 110 for private carriers in 2009? Are the state funds performing so poorly that it brings the CR up 10 points?
I suspect that there are several things going on that affect profitability. First, when times are tough and people expect to lose their jobs, being out on Worker’s Comp is not such a bad thing. Second, regulators are subject to great political pressure to keep rates low.
The economic effects of the recession account for only part of the problem. NCCI is working off of 2-3 year old data that is void of any meaningful relationship to stagnant state fee schedules on medical and medicare set asides that are plagueing comp cariers right now. NCCI rates must come up or we will see a 50% decline in monoline carriers in the next two years. Multiline carriers are insisting on inclusion of W/C in bops and paying much higher commissions than monoline. Monolines have the niche expertise that the industry can not due without on a go forward basis.
I’ve never figured this out. But every time the industry market hits the bottom, WC carriers come out of the woodwork. Other carriers, like Hartford, try to buy WC insurance galore. What gives?
Even a carrier like West Bend, buried in Work Comp problems. So they go and do what? Yes, the go and start up a WC division for tough to place WC. They raid United Heartland of their top people. HUH?
And you’re right, comp only carriers pay too much commission, and they price too cheap. But the previous poster is wrong about one thing. They are not all that smart. EBI gone. Virginia Surety gone. Illinois National gone. Fremont gone.
Other than Liberty Mutual, what WC expert company has been around longer than 10 years?
If this is true – Why can I still cut premiums on every single renewal and new business quote?
Because carriers are dazzled by the prospect of telephone numbers. The perfect storm: greed, stupidity, need for cashflow, “expert” underwriting systems that clever users learn to fluidly navigate, and lack of institutional memory.
Wonder how PMA will do under new ownership?
All good points – I love each post – and wouldn’t the discussion be incomplete if we didn’t mention the reinsurers and their role? Apparently reinurers aren’t putting pressure to increase their rates when the treaty’s come up for renewal.
And the capital markets – aka Innocent Capacity.
I think there will be a capital hoovering — the proverbial giant sucking sound — when AIG pays off it’s loan, BTW. Might do us some good.
The medical cost inflation, the lack of healthcare insurance for many, the aging workforce, increased utilization as med professionals realize that they can do more procedures and older workers need more time to heal, and other demographics are all conspiring against profitability in this line.
I do not want to really get into a political debate on all this, but the states now are preventing adequate rate to be allowed, such as the second (third?) year in a row that CA has turned down the almost 30% requested rate increase; the fact that NV, which used to be responsible, has now decreased rates to non profitability, etc., so state regulation is only as good as the economic and therefore political pressure put on it.
If you go in the NCCI site and look at the LRs for all states, you will see that there are very few with ratios below 100%…and that data is 2008 date…
agree…this line of business is due for a big shake up…
There are few reinsurors who have significant placements in Comp. The lack of large CAT losses in the past two years on the property side has left them flush with cash to support “temporary” losses in Comp. The way this market is going, i doubt a double digit reinsurance rise would equate to any detectable rise in underlying Comp rates.
Great dialogue – constructive and meaningful. Does anyone see anything on the horizon that might suggest a significant change in the Comp market?
If reinsurers aren’t that critical to the Comp carriers, may we be in a decade-long soft market?
Possibly. The last market change from soft to hard was due to 9/11 and had nothing to do with the industry experience and everything to do with reinsurance rates reacting to a global crisis. The current market without reinsurance leading the rise will be happy to absord market share due to downgraded monoline carriers. Until the market and economy are churning again, the flow of capital into reinsurors will not abate as they are giving investors better returns than the AAA rated corporate bonds and long term treasury notes where big money usually sleeps. We had one of the most severe outlooks for CAT losses in years and sofar have nad nothing to speak of from the Atlantic hurricane season. Barring a rainy season earthquake in California, the CAT season will be a bust and reinsurors will again post $10B in additional capacity gains due to net incomes.
Candid and to the point – you should run for office like here in CA. Your wisdom is in dire need out here!!!