There is a lot to like about how the workers’ compensation market is doing.
A robust economy is generally favorable for workers’ comp, as growing payroll and investments in workplace safety are helping, says Andrea Gardner, workers’ compensation lead for The Hartford.
“The workers’ compensation line has not experienced any material or disruptive changes for several years, including the absence of material regulatory change and only modest trends in medical costs,” Gardner said. “In addition, the long-term decrease in the frequency of losses related to improved safety measures continued through 2017.”
Justin Boardman, workers’ compensation manager at Chubb, sees several factors at work in the generally positive results. “For example, several states have implemented meaningful reform and established formularies to address escalating costs and abuses in the system,” he said.
Boardman believes that the stronger economy has also meant more skilled and experienced employees returning to work, which has helped workers’ comp results. “In addition, skilled and experienced employees are staying in the workforce longer, both of which have contributed to lower frequency trends.”
Gardner is a bit more cautious about labor. “A very low unemployment rate as we have today can be a concern – if inexperienced workers are hired into complex jobs, the risk of injury is increased,” she said.
Underwriters should be pleased with the 2017 results, according to Matt Zender, vice president and workers’ compensation product manager at AmTrust. Zender is focused on one metric in particular that he suggests shows there is room for improvement.
“My eyes go to the accident year results versus the calendar year results, and right now, there’s about a 10-point spread between those two,” he said, citing the 89 percent calendar year combined ratio vs. the 99 percent accident year 2017 net combined ratio for 2017.
“I tend to think that the accident year is a better match for results because the accident year loss ratio takes current and future losses divided by current and future premiums, whereas calendar year takes current and past losses divided by current and future premiums,” Zender said. “I would then hope that the 99 will improve as we look at it in subsequent years,” he added.
Predictive analytics have also played a key role in case management and fraud prevention, according to Boardman.
Zender agreed that predictive modeling and data analytics are strengthening the workers’ compensation line.
“Carriers are getting better and better at working with analytics and getting a better sense as to who we are, and how those risks that we’re writing will perform,” he said. “As we use those analytics and better match up premium and exposure across a portfolio, it’s leading to carriers that I think, rightly, are more emboldened and confident about the state of their individual books. That’s absolutely a good thing.”
Todd Pollock, senior vice president of workers’ compensation for Worldwide Facilities, says there’s no question workers’ compensation is in a soft market cycle, which he says is a trend to keep an eye on when it comes to profitability.
“The competition in the market is as fierce as I’ve ever seen it,” he said. “State rate decreases combined with increasing competition has driven down pricing.”
Traditionally low-hazard workers’ comp carriers are venturing into higher risk classes, he added.
“Carriers are getting more aggressive with their pricing on accounts where they wouldn’t have [underwritten] in the past,” he said.
Pollock attributes the current profitability to a coordinated effort among all players involved. The medical community and the insurance industry have figured out ways to handle claims better and keep claims costs a little bit lower, despite the high rate of inflation in health care, he said.
“So, the cost of health care has been going up and up and up, yet the cost of claims has not. …There’s been some adjustment in the way injured workers are handled, which doctors to send them to, in providing light duty or a modified duty programs to get people back to work quicker – to get them proper rehab as opposed to just sending them home,” he said.
Going forward, Gardner sees technology changes in the workplace playing a role in the profitability of workers’ comp over the long term. “Technology will change the makeup of the workforce, as robotics replace workers in high hazard roles and create employment in technology-related fields,” she said. “This is likely to contribute to the ongoing decrease in the frequency of workers’ comp losses.”
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