New Jersey's top insurance regulator has approved as of January 1, 2013 an 8.3% increase in workers' compensation rates –  the third in as many years – in response to a filing by the New Jersey Compensation Rating and  Inspection Bureau, largely driven by rising medical costs.

New Jersey joins several large states that are seeing rising workers' comp rates this year. Florida approved a 6.1% hike earlier this month. California last week approved an increase in the state's advisory pure premium rate that is 2.8% greater than the average filed rate and followed an 8.3% hike in the pure premium rate that took effect on July 1. The National Council on Compensation Insurance has recommended a 7.1% rate increase in Connecticut to take effect on January 1.

Workers' comp rate increases are great for brokers because higher premiums mean higher commissions. However, higher premiums can send even most loyal clients shopping for lower premiums.

Our company, Apex Services, does not sell insurance. We partner with brokers nationwide to help them obtain workers compensation refunds for their clients on their prior years' policies. There are no out-of-pocket expenses to the client or the broker. The best part of all is that brokers earn commissions while maintaining their clients and win new business.

PropertyCasualty360

December 6, 2012

Rates in both commercial and personal lines insurance continued to increase through November, according to the electronic exchange MarketScout.

Commercial-lines accounts increased an average of 5 percent in November compared to the same period last year and personal lines increased by 4 percent, the Dallas-based company says.

In October, commercial line accounts were up 4 percent compared to the same period last year and personal lines were up 3 percent.

By coverage class for commercial lines, commercial property, general liability, umbrella—excess, commercial auto and workers’ compensation increased the most at 5 percent. Surety was up the least at 1 percent. No lines of business showing decrease.

Turning to account size, small, medium and large accounts were all up by 5 percent, while jumbo accounts (over $1 million in premium) were up 2 percent.

By industry class, manufacturing and transportation were up by 6 percent. Contracting, service, habitational and energy were up by 5 percent. Public entity was up by 4 percent.

“The manufacturing rate increase was surprising,” says Richard Kerr, CEO of MarketScout in a statement. “Normally, manufacturing is a very stable industry class absent quick pricing changes. Going from plus 4 percent [in October] to plus 6 percent was unusual.

“As for transportation, the trucking segment of this industry class is what is really driving the rate increases for the class at plus 6 percent. The losses suffered by the trucking market have been considerable over the last several years. We expect further rate increases for trucking exposures.”

Turning to personal lines, homeowners coverage under $1 million in value was up 4 percent. Coverage for values over $1 million was up 5 percent. Automobile and personal articles were up 3 percent.

“Homeowners placements for homes over $1 million, the ‘high-net-worth’ market, made a dramatic move in November,” says Kerr. “Rates moved up from plus 2 percent in October to plus 5 percent in November. That is the largest month on month rate increase we have seen in the eleven years we have been tracking rates in the U.S. It appears insurers of high value homes are adjusting rates upward to account for increased exposure to weather related events. And some of the accounts are now being forced into the non-admitted market where rates are higher and coverages are frequently restricted.”

In an analyst’s note, Meyer Shields, an analyst with Stifel Nicolaus, says that while rate increases remained steady, they should accelerate following Superstorm Sandy.

“We see insurers’ deteriorating calendar-year results as the primary catalyst for rate increases, and we expect these increases to accelerate as favorable reserve development subsides, net investment income declines and accident-year results worsen,” Shields writes.

Hello brokers. Here's an early new year's present. Rates are going one way: up up to the sky. So, the benefits are fatter commissions but the problems come with hearing your clients crying that they can't pay for these increases. Telling them that rates have gone up across the board is not going to be reassuring because they only really care about the extra money they have to come up with right now. They will consider what their options are. So as long as you're doing everything possible to keep your clients' premiums where they should be, and I mean doing everything possible, then you should be way ahead of the game.

Offering a current client or even a prospect to help them reduce their workers compensation premiums in a short period of time is beneficial for them, as well as yourself and your brokerage. It is the quickest way to give them a better underwriting profile for their renewal. When they get back money because of you, your relationship with them will be greatly enhanced. After all, when was the last time someone handed them a big check with money they would have never otherwise seen? Win your clients and prospects over today by offering them workers compensation premium recovery.

Business Wire

November 12, 2012

American International Group, Inc. (NYSE: AIG) today announced that AIG is again the go-to-market brand of its global property casualty business in most locations, and that the company’s life and retirement segment is now AIG Life and Retirement.

As part of the rebrand, AIG has also introduced a new brand promise: Bring on tomorrow.

“AIG as a global insurance brand is back,” said AIG President and Chief Executive Officer Robert H. Benmosche. “The re-launch of the AIG name marks a significant achievement for our company. ‘Bring on tomorrow’ underscores AIG’s tremendous tenacity and ambition – to solve problems, to innovate for the benefit of our clients, and to act as a powerful, global team. These are the attributes that have enabled AIG to succeed in making America whole on its
investment in our company, plus a positive return of more than $15 billion.

“Now we look to tomorrow, and we’re excited about the potential we see there. We’re excited to get to work on seeing, building, and securing a better future – for our customers, for ourselves, and for communities around the world. I believe that the spirit of inventiveness and adaptability at the core of AIG will bring opportunities and open doors that will redefine what’s possible, helping our customers thrive and make the most of every day.”

Starting today, AIG’s global property casualty franchise will begin to use the AIG name, and deploy the company’s new logo and brand promise in marketing and advertising as appropriate. Other brands in the AIG family, including VALIC, Lexington Insurance, American General, SunAmerica, and Western National, will continue unchanged.

AIG Property Casualty Chief Executive Officer Peter Hancock said, “We are very excited to celebrate the long history and strength of the AIG name with our customers around the world. With our investment in the latest data technology, combined with our spirit of inventiveness, we think we’re well positioned to help them meet the challenges of tomorrow.”

“The AIG name represents strong values, hard work, and keeping our promises. AIG Life and Retirement continues to embody those values,” said AIG Life and Retirement President and Chief Executive Officer Jay Wintrob. “Our promise to ‘Bring on tomorrow’ fits well with our role as a premier provider of protection, investment, and income solutions that prepare our customers for a successful future.”

The total authorized U.S. government assistance to AIG of $182 billion has been fully repaid, and the Federal Reserve and United States Department of the Treasury have to date received a combined positive return of approximately $15.9 billion on their investments in the company.

American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange.

AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit our website at www.aig.com. All products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Products or services may not be available in all jurisdictions, and coverage is subject to actual policy language. Non-insurance products and services may be provided by independent third parties. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds, and insureds are therefore not protected by such funds.

As we mentioned in a blog back in June, Chatis is reverting back to the AIG name for its Property & Casualty line. As AIG continues to make a strong comeback, especially in the workers comp market, brokers can be be happy that they will continue to have a place to place their hard-to-write accounts.

Speaking of renewals, brokers should keep in mind that the quickest and easiest way to provide a better underwriting profile for your clients and prospects is through workers compensation premium recovery. Through this service, you will lower your clients' and prospects' experience mods, help them receive refunds, and generate a new revenue stream for your brokerage.

Business Insurance

September 11, 2012

Towers Watson reported this week that workers comp insurance pricing rose by “high single digits” during the second quarter of 2012.

According to Towers Watson's commercial lines insurance pricing survey, commercial lines prices were up 6% overall during the second quarter of 2012 compared to the same quarter a year earlier.

Workers comp and property insurance markets saw the greatest increases.

“Price increases were observed across all account sizes for standard commercial lines, with larger increases for mid-market and large accounts,” Towers said.

It seems that every day we read a new article about workers comp rate increases. In times of economic hardship, many employers are looking to their brokers to keep their workers comp premiums in check. If you are not doing everything for your client to show them savings, they are likely to look elsewhere for cheaper rates. Also, there are a lot of employers out there who are in the market for a new broker who can offer them more than what their current broker is offering.

Fortunately for you, there is a quick and easy way to ensure your current clients stay with you and you sign new prospects. Workers comp premium recovery presents your clients and prospects with refunds on current and prior years' policies; and the referring brokers earn commissions. At a time when rates keep increasing, you can be the broker who offers his/her clients and prosepcts significant savings, thereby holding onto your current clients and signing up prospects.

Average rate increases for commercial and personal insurance lines continued their upward push through August rising an additional point over the prior month, says MarketScout.

The Dallas-based electronic exchange’s property and casualty commercial insurance market barometer puts the composite rate for U.S.-based commercial risks up 5 percent for August. Rates stood up 4 percent for the months of May, June and July of this year.

Commercial property rates in the United States were up 7 percent in August—an acceleration from a 6 percent increase seen in July.

Workers’ compensation and general liability rates were up 6 percent in August. Rates for directors’ and officers’ liability increased a point to 4 percent from 3 percent in July. Employment practices liability insurance rates held steady up 3 percent.

Not all lines saw an uptick in rate increases in August.

Commercial auto rates dropped from up 5 percent in July to up 4 percent in August. Rates for umbrella/excess increased 3 percent in August compared to 4 percent in July.

By account size, rates at small and medium accounts were up 5 percent, large accounts were up 4 percent, and jumbo accounts of over $1 million were up 3 percent, says MarketScout.

From an industry class perspective, rate increases in August were led by 6 percent hikes in manufacturing and contracting.

Looking to personal lines, rates in August this year compared to August last year were up 3 percent—an increase from up 2 percent in July.

Insurance on homes valued at above and below $1 million was up 3 percent in August. Auto insurance rates were up 2 percent for the month.

Rates are rising. Carriers are getting tougher on renewals, as the market firms and they look to make profits with the current reduced payrolls and high loss ratios. Broker relationships with carriers will no longer be enough to get difficult (non-profitable) accounts written. Here's the easiest way to give your client a more attractive underwriting profile to enter the new marketplace with: workers comp premium recovery.

ESPN

August 30, 2012.

Claims move toward head trauma, a change that could cost NFL teams millions

National Football League teams are facing a significant threat to their finances because of a legal option available to nearly every janitor, teacher and cashier in America — workers' compensation.

Playing professional football is inherently dangerous, but the known risks do not prevent players — and former players — from filing workers' compensation claims against teams, courts have ruled. And while an individual compensation award might cost a team just $20,000, the changing types of claims being filed could end up costing teams millions of dollars a year.

More and more, the long-term effects of head trauma are being cited in workers' compensation claims, experts told "Outside the Lines," and the yearslong medical-treatment payments teams might be on the hook for to cover such claims could add up to millions annually.

More than anything else, said one insurance broker who has worked with an NFL team on its workers' compensation benefits, the workers' compensation reality could be the one item that forces significant changes to how the game is played on the field. Linemen, for example, might not be allowed to crash into each other from three-point stances in the near future, said Duke Niedringhaus of J.W. Terrill, a St. Louis-based insurance firm that has brokered workers' compensation insurance for NFL teams. And while others disagree with that assessment, there is agreement among insurance, NFL and legal sources that workers' compensation issues are yet another looming financial cloud for teams.

"Most companies know, five years after a given year, how much money in claims they'll be paying," Niedringhaus said. "After five years, these NFL teams have no clue what the future will look like."

A different legal challenge

The NFL is facing a barrage of legal challenges over player injuries. More than 3,000 former players or family members have filed lawsuits against the league seeking concussion-related damage claims. And the league and some of its insurers are volleying lawsuits over which head-injury damages each should be responsible for covering.

But the workers' compensation issue is separate. Workers' compensation has been an option for players and ex-players for years. State laws allow workers — including football players — to file such claims; most claims involving NFL teams have centered on specific injuries for which a set amount of money is usually awarded.

But those types of claims have been manageable, Niedringhaus said, because teams, which are required to carry workers' compensation insurance or prove to states they have enough money to cover claims, had a fairly good idea of what they might be facing given those types of obvious injuries. In recent years, teams have paid workers' compensation deductibles to insurance companies in the neighborhood of about $500,000 per player who filed a successful claim. Yet that number has moved to about $1 million per successful claim, he said, and it's not unheard of for teams to be paying $3 million to $5 million annually for claims over a 10-year period.

Teams face two significant issues: former players in some states often can file claims years after their playing time ended, and the long-term effects and treatment of head injuries. Floyd Little and some of his former teammates with the Denver Broncos filed workers' compensation claims saying they still suffer from injuries that occurred during their careers in the 1970s and '80s. In the Little case, which is pending, the team's insurer filed a lawsuit saying it was not responsible for paying such a claim.

California a special place for cases

In order to collect on a workers' compensation claim, players, like all other employees, have to show they were injured on the job. Specific injuries in specific states usually aren't particularly costly, and there are set costs for certain percentages of disability. Once it is determined by the state that a player's case for injury is valid, a settlement often is reached. But players often have the right to shop around for the state that offers them the most expansive coverage. Former Washington Redskins punter Tom Tupa and wide receiver Darnerian McCants filed for workers' compensation in Maryland because the state has a reputation of offering better benefits as compared to Virginia, where the insurer and the team argued Tupa and McCants spent most of their time employed (practicing), even though games were played at FedEx Field in Landover, Md. The court sided with the players.

"For Tupa, it means lifetime medical care," Benjamin T. Boscolo, Tupa's attorney, told the Baltimore Sun. "It means surgery if and when he gets to a place where he can't function in his state of health."

The most exposure to teams lies in the state where the most teams play: California.

California is the only state that allows employees, including players, to file a cumulative trauma case. And it has no time-period restriction on when a player must file a claim. Cumulative trauma is an injury that results from constant overuse on the job. California is unique because a claimant need not have been an employee of a California-based team. A player who played just one game or had one practice in the state — even as a member of another team — is eligible to file a claim. Attorneys and players have aggressively moved cases to California because of these reasons.

Only a few dozen NFL cumulative trauma cases have been settled thus far in California, but there are hundreds of player claims lined up there — a reality first reported by The New York Times in 2010.

With so much money in play in the California cases, the league has fought back. Over the past couple of years, the league has worked with teams to successfully get compensation cases involving former New Orleans Saints and Kansas City Chiefs players moved from California back to the jurisdictions of their states. The league and teams have been quietly celebrating a recent Ninth Circuit Court of Appeals decision that ruled that Bruce Matthews, who had a 19-year career in the league with the Houston Oilers and Tennessee Titans, couldn't file for workers' compensation in California because he didn't prove he was injured there.

And some teams have been successful at working language into player contracts that limits where a player can file a workers' compensation claim, even though those stipulations don't always hold up in court. Tupa and McCants, for example, each had contract clauses that said they must file such claims in Virginia. Yet Maryland's highest court ruled that limiting players to certain coverage was in violation of state law.

Three years ago, the NFL Players Association hired Michael Gerson, a California-based attorney, to represent young players to make sure they had access to the future benefits they deserved. Gerson said insurance companies frequently would track down players whose careers had ended with injury, offering them small settlements in exchange for waiving future claims.

"If they can buy a damaged knee for a couple thousand dollars, they're going to do it," Gerson said, estimating that 50 percent of all NFL players have some sort of joint-replacement surgery by the time they are 50 years old. Gerson said he doesn't understand why the league makes it so hard for players to fight for their employee rights.

"The NFL has been making money off players for years by having them be gladiators, going toe to toe," Gerson said. "If they get the reward, they have to assume the risk."

League officials declined to answer questions about the past, present and future of workers' compensation, but league spokesman Greg Aiello did mention the league offers compensation for those experiencing the effects of head trauma through its 88 Plan. The plan — named for the uniform number of former Colts tight end John Mackey, who suffered from dementia — allows players to collect benefits associated with dementia and Alzheimer's without needing to prove a link to anything that happened to them on the field. The program provides up to $100,000 a year if a player is being cared for in a hospital or an assisted-living community and $88,000 a year if a player is living at home. The NFL, which recently added players faced with Parkinson's to the plan as well as a $10,000 funeral benefit, said that since the program has been in place, it has paid $18.6 million to players.

A player who receives payments from the NFL is not prevented from receiving a workers' compensation award.

"There's a clear correlation with what's happening with these guys with brain injury and the effects they are experiencing," Niedringhaus said. "A lifetime full of unlimited medical coverage could cost millions and millions of dollars."

Niedringhaus' view of the situation is what prompted him to look differently at the recent majority sale of the Cleveland Browns. When Jimmy Haslam III agreed to purchase 70 percent of the team for $700 million, many looked at it with a "rich get richer" mentality.

Niedringhaus saw it a shrewd business move for the seller, Randy Lerner.

"If I'm an NFL owner and I can sell my team right now for $700 million and get rid of all the prior legal liabilities, how could I not?" he said. "A lot of the damage has already been done to players who injured themselves five, 10, 15 years ago."

Complexity in workers compensation claims is not just limited to the NFL. There are many things to sort out in different claims in various blue collar industries. These complexities offen lead to errors and over

Property Casualty 360

August 27, 2012

P&C insurance rates are rising, and pricing momentum is expected to continue through 2012, but some observers say increases might moderate in 2013 and that the industry will not see a hard market marked by strong underwriting profitability.

In a Special Comment on Q2 earnings published Aug. 20, Moody’s Investors Service says insurers have seen strong earnings growth through the first half of the year, driven by lower catastrophe losses and increased premium growth. Moody’s says rate increases broadened in the second quarter relative to the first, leading to a 6-percent year-over-year increase in net written premiums, up from a 4-percent increase in the first quarter.

The ratings agency adds that companies may “turn up the dial on rate increases” as the year progresses due to an expectation of moderating reserve releases.

But while industry observers may agree that the market is “improving” for carriers, plenty of doubt remains as to whether the industry will see a true hard market.

In a separate report, Fitch Ratings says while P&C insurance rates should continue to rise into early 2013, a return to a sustained hard market is considered unlikely. The ratings agency expects continued competitive forces to dampen favorable pricing momentum as 2013 progresses.

Aside from competition, James Auden, Fitch’s managing director of P&C insurance, tells NU, “There is still a lot of capital in the market that needs to be put to use.”

A third report by firm Stifel Nicolaus indicates that current rate increases are not enough for insurers to see much in the way of underwriting profits. The report, which mainly outlines the industry’s reserve-release trends, notes that while insurer second-quarter conference calls point to improved pricing, few insurers reported rate increases “that currently match or exceed claim-cost inflation.”

Stifel Nicolaus went on to say that carriers’ return on equity will be challenged until “rate increases both accelerate from current levels and flow into earned premiums.”

The saying goes "take it one day at a time." Today, carriers are losing money even with all the workers comp rate increases. So today, insurance companies are waking up and they're dreaming about profits. But to make profits tomorrow, changes have to be made today. Today's changes are that they're going to review the losses on the submissions they're getting in and they're going to make sure they have more than enough premium to cover the losses. So brokers who have been writing direct and have built great relationships over the years with various carriers are now finding many of their renewals being rejected. Proof of this is that there's been a 50% increase in the assigned risk pool for premiums of $100,000 and above.

There is one easy solution for brokers to help their clients by obtaining refunds on past policies, savings on the current policy, and a better underwriting profile for future years. Workers comp premium recovery is a win-win solution for brokers to maintain their clients and win new business.

Insurance Journal

August 24, 2012

Florida employers may see their workers’ compensation rates increase as the National Council on Compensation Insurance announced it is seeking a statewide average 6.1 percent rate hike on behalf of insurers.

If approved, the NCCI filing would mark the third consecutive increase, following a 7.8 percent jump in 2011 and 8.9 percent in 2012.

While there have been hikes the past few years, the overall trend of rates in the state has been down for the past decade. Employers’ rates have gone down an average 56 percent since lawmakers rewrote the state’s workers’ compensation law in 2003.

The Office of Insurance Regulation said it would review the NCCI filing in anticipation of a public hearing to be held in October.

If approved, the new rates would take effect Jan. 1, 2013.

“A careful review and thorough analysis of this rate filing will be performed to evaluate its potential effects on Florida’s workers’ compensation insurance marketplace and employers,” said OIR in a statement.

If approved as filed, all five major classifications would see an average increase. Manufacturing classes would increase by an average 4.8 percent, contracting classes by 7.4 percent, and office and clerical classes by 4.3 percent. Goods and service classes would increase by 6.7 percent while miscellaneous classes would increase by 5.6 percent.

According to NCCI documents, the proposed 6.1 percent increase is being driven by a 6.8 percent increase in the experience and trend portion of the filing.

NCCI noted that there are three factors affecting the state’s recent loss experience including the fact that after nine years of decreases in claims frequency, the claims frequency rate has increased by an average 4.5 percent in 2009 and 2010.

Additionally, the average indemnity cost per case that is in excess of wage growth has remained relatively flat since 2006. At the same time, the average medical cost per case in excess of wage growth has increased since 2006.

The industry says that the savings produced by the 2003 workers’ compensation reforms have been exhausted.

NCCI said that “it has been has necessary to adjust the very optimistic outlook, or trend, underlying rates to reflect that significant ongoing experience improvements are no longer occurring and are no longer expected.”

Still, the 2003 reforms did produce savings.

In terms of average loss cost, since 2003 this went from $2.62 per $100 of payroll to a low of $1 per $100 of payroll. Taking into effect the current filing, the average loss cost would be $1.14 per $100 of payroll, which brings Florida in line with other Southeast states.

The OIR said that it will submit several proposals to state lawmakers next year in an effort to reduce some workers’ compensation costs.

The first is a proposal that would reduce the amount paid to physicians who repackage drugs and redistribute them from their office. The issue gained attention this year after NCCI reported that the cost of repackaged drugs translated into a 2.5 percent increase in 2012 rates, resulting in $62 million in additional cost to employers.

State lawmakers considered lowering reimbursements on physician-dispensed drugs so they would be paid the same amount as pharmacies, which receive three times the drug manufacturer’s wholesale price, plus a $4.18 dispensing fee. However, the proposal failed in the face of strong opposition from drug makers.

The other OIR proposals would address the reimbursement rates for hospital inpatient treatment and the amount paid for outpatient and ambulatory surgical center treatment.

Workers compensation premium recovery continues to be the best option for brokers to help their clients as rates increase. Brokers can demonstrate to their clients savings with a better underwriting profile to enter the new marketplace with.

Risk & Insurance

August 23, 2012

Net premiums written by state funds increased more than 7 percent in 2011. The market is likely to see more significant growth than the rest of the workers' comp industry this year, according to a new analysis from A.M. Best.

State funds typically serve as guaranteed markets for companies that have difficulty obtaining insurance in the general marketplace. The recent years of soft conditions is changing, resulting in net premiums written improving in all state funds except the State Compensation Insurance Fund of California and the State Workers' Insurance Fund in Pennsylvania.

The overall 7.1 percent increase among the 20 state funds marked the end of the decline in net premiums written that had occurred from 2004 to 2010. In its report, State Funds' Net Premiums Written, Surplus Grew in 2011: Signs of Change Ahead, Best cited these factors leading to the increased premiums:

• Improved premium audit adjustments. As payrolls stabilized in 2011, most companies found audit results also stabilized with lower return premiums or even flat or positive audit results.
• Stabilization of employment and payrolls.
• A trend toward higher pricing. Initially, much of the increase in 2011 was due to reduced use of scheduled debits within rate plans. "However, a number of companies have indicated that they have filed for and received approval of increased rates, which will take effect through 2012."

A variety of factors resulted in the state funds' calendar year combined ratio of 134.9, the highest level in 10 years. On an accident year basis, the combined ratio was up less than 1 point, marking the smallest increase since 2008.

"As market conditions firm and perhaps enter a full-fledged hard market over the next several years, A.M. Best expects the state funds to continue growing at a faster pace than the broad market," the report says. "Overall, it appears as though 2010 may mark the end of the recent cycle for the state funds. While A.M. Best does not believe a traditional hard market has begun, rate increases and anecdotal reports of more stringent application of underwriting and pricing criteria indicate that the stage may be set for a change in the market over the next year."

Whether or not you believe that "a traditional hard market has begun," there is no denying that premiums are on the rise and employers are flocking to state funds. Unfortunately, many employers who go into the state funds fail to realize that although they may experience short-term savings, other factors may lead to experiencing higher costs in the long run. If you have clients that you've lost to the state fund or you are at risk of losing to the state fund because of pricing, there is no better solution than offering them workers compensation premium recovery. Not only will your client see immediate refunds on current and prior years' policies, they will have a better underwriting profile to enter the renewal marketplace with, which will enable you, the broker, to continue earning commissions while keeping your client happy. Furthermore, you will earn first-year and renewal commissions with our workers compensation premium recovery service.

PropertyCasualty360

August 20, 2012

The 2012 edition of the National Council on Compensation Insurance’s (NCCI) annual State of the Line report, evaluating Workers’ Compensation fundamentals and conditions, reveals a market characterized by a number of countervailing indicators as to its forward trajectory.

In some ways, we are seeing improved conditions in the Workers’ Comp space over previous years; by other measures, the market remains in a worrisome state.

PARSING THE NUMBERS

For the third straight year, Workers’ Comp holds the dubious distinction of having the highest combined ratio of all of the major commercial lines: 115 in 2011, the same number as in 2010.

It is important to remember that the 2010 number was influenced by the fact that one carrier had significantly strengthened its excess Workers’ Comp reserves, adding three points to the combined ratio for 2010.

Without that strengthening, the combined ratio would have been 112. Since there appeared to be no excess Workers’ Comp reserve-strengthening in 2011, that 115 combined ratio may actually be viewed as a further deterioration.

Because of its direct connection to employment and the labor markets, Workers’ Comp has been the P&C sector most significantly impacted by the Great Recession. As a whole, the line (including state funds) experienced a drop of more than 25 percent in premium between 2006 and 2010, coupled with more than a 20-point increase in combined ratio over the same time period.

However, in 2011 net written premium increased by 7.4 percent to $36.3 billion. This boost is the first since 2005, and it is a welcome shift following the cumulative 27-percent decline in premium between 2006 and 2010.

But most of that increase was actually due to the rebound in premium audit impacts that so depressed 2010’s premiums: Almost none of the increase was due to price, either through bureau-filing activity or changes in carrier discounting.

ACCIDENT-YEAR RESULTS

Analyzing experience on an accident-year basis can provide additional insights into the underlying performance of long-tail lines like Workers’ Comp, without the distortions of prior-year reserve adjustments.

NCCI estimates the combined ratio for private carriers for accident-year 2011 is 114—down two points from 116 in 2010. This improvement is likely due to understated calendar-year 2010 premium.

On an accident-year basis, the current underwriting cycle turned in 2006 when the combined ratio was 86. Since then, the combined ratio has increased by almost 30 points.

RESERVE POSITION BEGS CLOSER ATTENTION

The private-carrier reserve position continued its modest deterioration in 2011 for the fourth consecutive year. Notably, NCCI’s estimate of the reserve position for the private carriers as of year-end 2011 shows an $11 billion deficiency.

After allowing for the permissible discounting of the indemnity reserves for lifetime pension cases, that inadequacy is about $5.9 billion, which is about 5 percent of the carried reserves of more than $113.3 billion. Although most of the deficiency is associated with accident years prior to 2002, NCCI’s estimate includes some deficiency in the current accident year.

The industry needs to keep a close watch on reserve adequacy: It can deteriorate very quickly if reserves for the most recent accident year are initially deficient.

BUREAU RATE/LOSS-COST CHANGES

Average bureau-filed rate and loss-cost changes also saw an unfavorable reversal in 2011.

For most of the previous decade, overall bureau loss costs were declining, with ongoing declines in claim frequency offsetting increases in claim severity. Since 2006, NCCI loss costs generally declined, with the declines gradually moderating from -5.3 percent in 2009 to -1.2 percent in 2011.

In contrast, so far in 2012 loss costs have generally increased, with NCCI loss costs up 2.5 percent on average and countrywide bureau loss costs up 7.8 percent. The countrywide increase in 2012 is mostly due to a large increase in bureau loss costs in California. The increases in NCCI states have been attributable to a number of factors, including longer claim durations.

CLAIM FREQUENCY DOWN

Workers’ Comp lost-time claim frequency improved in 2011. After increasing 3 percent in 2010, claim frequency in 2011 declined 1 percent on average in NCCI states.

As we surmised in 2011, many of the new claims coming into the system—and causing the somewhat higher levels of frequency in the last couple of years—appear to be small lost-time claims.

INDEMNITY, MEDICAL AVERAGE CLAIM COSTS SEE MODEST INCREASE

NCCI research last year suggested that some of the increase in average medical  claim costs may have been driven by an influx of small claims, both small lost-time and medical-only claims.

This supposition was verified by additional NCCI research showing that from 2009 to 2010, medical-only claim frequency increased 3 percent, while all lost-time claim frequency increased 4 percent and small lost-time claim frequency (that is, claims less than $2,000) increased by 6 percent.

This increased frequency of small claims is a reversal of the significant drop in the frequency of small claims from 2007 to 2009. Over that two-year period, lost-time claim frequency dropped 8 percent, while small lost-time and medical-only claim frequencies dropped 11 percent and 12 percent, respectively.

We believe that these frequency changes by size of claim were driven by the depth of the last recession, which produced significant changes in claim behavior. As the recession deepened in 2008 and 2009, small-claim frequency dropped more rapidly than larger-claim frequency. As the modest recovery started, the frequency of smaller claims increased as the workforce stabilized and grew a bit in 2010 and 2011.

This shift in the mix of claims also affected claim severity: In 2010, the average indemnity cost per lost-time claim decreased by 2.8 percent. In 2011, the average change was a very modest increase of 2 percent. The average change in medical cost per lost-time claim showed similarly favorable results. In 2010, the average cost per claim was up just 1.3 percent, while in 2011, the increase was 4 percent. These are the lowest increases in average claim costs since the early 1990s.

In spite of this shift, the underlying cost-drivers for both indemnity and particularly medical are still present. This means that medical costs, absent the claim shifts, are still likely to be increasing in excess of medical CPI—as they have done for many years.

RESIDUAL MARKET GROWING

Depopulation of the residual market ceased in 2011, reversing the trend of declining residual-market premiums that began in 2005. Premiums grew by 7 percent in 2011 to approximately $500 million. Overall, the market share of the residual-market pools serviced by NCCI for 2011 increased from 4.6 percent to 5 percent.

The combined ratio of the residual-market pools also increased slightly, from 120 in 2010 to 121 in 2011. At this time, the pools are quite small, so individual losses and states can have a disproportionate impact on the combined ratio. In 1998–2000, when the pools were of similar size in the last cycle, the combined ratio also climbed to nearly 120.

Residual-market growth in 2011 was fueled by large policies entering the market. Premium for policies greater than $100,000 increased by nearly 50 percent from 2010 to 2011; premium for policies between $10,000 and $100,000 grew by more than 15 percent during the same period. That rapid growth continued in the first quarter of 2012, with premiums increasing for all policy sizes over the first quarter of 2011 (with the largest increases occurring in the largest policy sizes).

LOOKING FORWARD

The total P&C insurance industry had its challenges in 2011, and Workers’ Comp was no different. Combined ratios remain at unsustainably high levels, and investment returns are not sufficiently high to generate operating returns near the cost of capital.

Although claims frequency declined in the latest year, it is unclear whether it is yet returning to its long-term downward trend. The small change in average severity of lost-time claims is at least partly attributable to an increase in the number of smaller lost-time claims reported in the last couple of years, and it does not necessarily reflect an underlying reduction in medical and indemnity cost drivers. In addition, reserve adequacy continues to slip.

On the more positive side, the growth in written premium provides support that the worst of the recession has passed. Additionally, the industry is well capitalized for the future.

Overall, NCCI continues to monitor the following areas of concern:

• Claim frequency
• The underwriting cycle
• Uncertain impacts from health-care and financial-services reforms, including the Federal Insurance Office
• Efforts to expand alternatives to Workers’ Comp

Like every other American business, we continue to await a real and sustained economic recovery that will put people back to work and help revive the Workers’ Comp industry. Until that happens, we see continued slow growth and a market whose future remains uncertain.

It all adds up to what's going on today. As insurance companies are making no profits, they will not continue to write premiums with negative returns. We see them starting to be more selective, analyzing new submissions' losses, and in many cases non-renewing premiums. As we see for the first time ever, more and more $100,000+ premiums are being forced into the residual marketplace with 50% increases in premiums. The formula is simple: insurance companies make no money writing workers comp, they're getting no investment income, one day they wake up and say "hey, why do we bother coming to work every day?"  Like the rest of us, they go to work to make money. So they hold a meeting on profitability and they decide that they're going to tighten the belt. Now, if you're a producer who has had fairly good relationships binding workers comp premiums directly with carriers you are now scrambling because they carriers are rejecting many of your accounts. Let us help you. With workers compensation premium recovery for your clients, we'll be able to give your clients refunds on prior years, reductions on current year, and a better underwriting profile to enter the new marketplace with. Certainly this service can help with no charge for you or your clients or prospects. Our program offers you commissions and partnering up with Apex will only make you as the broker look great to clients and prospects.