Workers’ Comp Premiums Jump 8.1% in First Half of 2013

Demotech’s review of second quarter 2013 data, as recently reported by insurers to the National Association of Insurance Commissioners (NAIC), shows three straight years of growth in workers’ compensation direct written premiums.

Workers’ compensation insurers reported an 8.1 percent increase in direct premiums written during the first six months of 2013 versus the same period in 2012. This increase is less than the 10 percent increase observed for full year 2012 versus 2011.

Written premiums are nearly 29 percent higher than in 2010 and are nearing the peak achieved in 2006. Given the slow pace of job growth during the economic recovery, most of this premium growth has come from rate increases and other pricing actions rather than payroll growth.

Top 25 Insurers

The top 25 workers’ compensation insurers, ranked by the highest dollar amount of direct written premium growth, reported a 30.3 percent increase during the first six months of 2013 versus the same period in 2012. This increase is impressive since 12 of the insurers in this year’s top 25 group were also in last year’s top 25 group, which had a similar percent increase. All other insurers combined reported only a 1.7 percent increase.

Texas Mutual Insurance Co. continued to grow as a result of the strong Texas economy.

Nine of the top 25 insurers wrote more than half of their total workers’ compensation premium in California: Travelers Property Casualty Co. of America, Insurance Co. of the West, Cypress Insurance Co., Security National Insurance Co., California Insurance Co., Employers Compensation Insurance Co., Everest National Insurance Co., Republic Underwriters Insurance Co., and National Union Fire Insurance Co. of Pittsburgh, Pa.

Most of the other top 25 companies are National or Near National P/C insurers that benefited from rate increases filed in a majority of the states over the past year.

Growth does not always ensure success, however. Insurers that had significant workers’ compensation premium growth in recent years but are no longer active due to adverse loss reserve development include SeaBright Insurance Co. (runoff), Majestic Insurance Co. (conservation), and ULLICO Casualty Co. (liquidation). Both rate adequacy and reserve adequacy depend critically on accurate estimates of future costs.

The majority of total workers’ compensation losses are now associated with medical costs. The future impact of the Patient Protection and Affordable Care Act on costs within the healthcare system is uncertain. The increasing use (and sometimes abuse) of narcotics for pain management results in escalating prescription drug costs for both short and long term claims. Most recently, the California Workers’ Compensation Institute has noted that the American Medical Association’s reclassification of obesity as a treatable disease could result in new or increased medical costs for workers’ compensation claims.

Historically low interest rates are suppressing current investment income which offsets some of these costs. In addition, there are concerns that an increase in interest rates may reduce the value of long term fixed income investments that are traditionally used for workers’ compensation reserves.

Topics California Carriers Workers' Compensation Pricing Trends