Risk & Insurance – August 2012

Where workers' comp rates were up an average 5 percent in May, they increased by just 4 percent in June. Kerr commented on the rate moderation noted for June.

"Accounts with class codes related to high-hazard exposures are being assessed considerable rate increases of plus 7 percent to plus 15 percent," he said. "Traditional 'main street' workers' compensation accounts are renewing as expiring to plus 2 percent."

Overall, the composition rate for property and casualty placements held steady at plus 4 percent in June. The rates by coverage classes included:

• Commercial property — up 5 percent.
• Business interruption — up 2 percent.
• Business owner policies — up 4 percent.
• General liability — up 4 percent.
• Umbrella/excess — up 3 percent.
• Commercial auto — up 4 percent.
• Professional liability — up 1 percent.
• D&O liability — up 2 percent.
• Employment practices liability insurance — up 2 percent.

The National Alliance for Insurance Education and Research conducted pricing surveys used in the analysis of market conditions. The surveys help to "further corroborate MarketScout's actual findings, mathematically driven by new and renewal placements across the United States," according to the June barometer.

Employers in blue collar industries who have employees under "high hazard exposure" class codes will see major premium increases. The upcoming experience rating split point change will also take its toll on these employers, who may soon find themselves struggling to keep up with the rising costs of workers compensation insurance. As a broker, this is worrying because clients will start looking elsewhere for lower rates, when they are hit with these premium hikes. Workers compensation premium recovery is the fastest and quickest way to help your clients and win new business.

Business Insurance

August 13, 2012

SPRINGFIELD, Ill.—NCCI Holdings Inc. has asked the Illinois Department of Insurance to consider a 3.8% decrease in advisory workers compensation rates for 2013, the department said in a statement Friday.

In a description of its rate filing, Boca Raton, Fla.-based NCCI said Illinois has seen a decrease in average comp claim costs in recent years. The rate reduction, if approved, would take effect Jan. 1.

Contractors would see a 12% decrease in comp rates, according to NCCI's proposed filing, while manufacturers would see a 5.9% decrease. Office and clerical firms would experience a rate reduction of 4.9%, and goods and services companies would see a 2.1% decrease.

The Illinois insurance department said its actuaries will review NCCI’s rate filing during the next 60 days.

“We’re pleased about the proposed rate reduction and look forward to the review process to confirm the results,” Illinois Insurance Director Andrew Boron said in a statement. “The lower rate would benefit Illinois employers with cost savings.”

Illinois employers would save $91 million in total workers comp premiums if the rate reduction is approved, the state insurance department said.

Now that savings is spreading in Illinois, employers are expecting it. What happens when you knock on a prospect's door and tell them that you could find savings and refunds going back several years? Wow your prospects and show them extra cash in addition to rate decreases and you will be their new hero. You should do this for your current clients as well because you will maintain their business and brokers earn first-year and renweal commissions with workers compensation premium recovery.

WorkCompCentral recently had an article about the New York workers compensation system that is mired in high costs and is struggling to find sensible reforms. Here are some highlights:

• The New York workers compensation system is driven by needless litigation, hamstrung by resistance to change and run by a board made up mostly of political cronies, all of which contribute to the high costs of workers compensation insurance in New York.
• Total average costs per lost-time claim in New York had reached $73,055 by policy year 2008 and are projected to exceed $100,000 this year.
• Lost-time claims accounted for 36% of all claims in New York, compared to a national average of 25%.
• Assessments collected by insurers were 20.2% of standard premium – the highest rate in the nation and more than five times the national average.
• Assessments in New York increased by nearly 40% following the Spitzer reforms and were five times the national average.
• The State Insurance Fund, the state’s carrier of last resort, accounts for nearly 38% of the New York workers' compensation market.
• The New York State Workers’ Compensation Board has presided over the "catastrophic" collapse of the New York group self-insured trust system. The board has declared at least 15 trusts insolvent since 2006 and reported nearly $1 billion in unpaid claims.
• The major problem with the New York system is that it runs on vested interests. It’s a volume-based business for attorneys and every single thing that happens has to be okayed by a judge.

If you are a New York broker, chances are you have clients who are struggling to stay afloat with the alarmingly high costs of workers compensation in the State of New York.  In order to keep your current clients happy and win new business, brokers must present their clients and prospects with ways to cut costs on workers compensation insurance. Furthermore, what the above article does not mention is that costs are expected to even rise further for employers in blue-collar industries who experience high-frequency and high-volume losses due to the nature of their business with the upcoming experience rating split point changes. The quickest and easiest way to help your clients and prospects is through workers compensation premium recovery.  Your clients and prospects will be thrilled to recover money on current and prior years’ policies and will enter the renewal marketplace with a better underwriting profile; and you, as the broker, will earn first-year and renewal commissions.

Florida Insurance Commissioner Kevin McCarty became the 39th state regulator to approve NCCI's plan on July 6. The plan would double the $5,000 "split point" NCCI now applies to injured workers' claims, effective next January, as the first phase of a three-year plan to increase the split point to an estimated $15,000 in 2015.  This means that insurance regulators in 39 states have now approved a plan by NCCI to change the formula it uses to calculate experience modifiers, effective Jan. 1, 2013. The change could increase premiums for almost a quarter of affected employers.

NCCI values claims costs at or below the $5,000 split point as primary losses and applies the full value when calculating experience modifiers, or X-Mods. It currently defines losses above $5,000 as excess losses and discounts their value.

Beginning on Jan 1, the split point will increase to $10,000. Under the plan, the split point would increase to $13,500 in 2014 and would be adjusted for inflation starting at $15,000 in 2015.

NCCI State Relations Executive Lori Lovgren said on Monday regulators have approved the change in 35 states for which NCCI recommends rates or loss costs. Regulators in Indiana, Minnesota, North Carolina and Wisconsin, which have their own rating bureaus, also have agreed to increase the split point.

NCCI said in explanatory materials that it has not adjusted the split point since 1991, while claims costs have tripled during the past two decades.

"Over time, the (rating) plan would continue to become less and less responsive," NCCI said. "There would be employers who deserve bigger credits and employers who deserve bigger debits . . . . And there would be less incentive for employers to control losses."

NCCI said that, across the 39 states, about 22% of employers will see experience modifiers increase by more than 2% beginning next January.

NCCI said it will calculate specific experience ratings for employers once rate filings are approved.

Employers in blue-collar industries who have significant loss experience can expect their experience mods to increase, due to the nature of their business and the frequency and severity of their claims.  For example, if the employer has several claims above $5,000, they can expect a larger amount of losses fall into the primary loss category, whereas before the split point change, they were calculated as excess losses at a discount.

It is also imperative to realize that the majority of the loss data that are being calculated into the first three years of the experience rating split point change (2013, 2014, and 2015) have already occurred. This means that although safety programs will help in reducing experience mods in future years, they will have little to no effect on the upcoming three years, where many employers will experience a major increase in experience mods, and in turn pay higher premiums. The easiest and quickest way that a broker can ensure that at-risk clients will not be caught off guard with drastic premium increases with the new experience rating split point change is through offering their clients workers compensation premium recovery.

Business Insurance

August 6, 2012

Commercial property/casualty insurance rates continued to rise in July, increasing 4% on average compared with those of a year earlier, according to a report released Monday by MarketScout.

According to the Dallas-based electronic insurance exchange, commercial property rates registered the greatest increase at 6%, compared with those of July 2011. Commercial automobile rates increased 5%, while rates for workers compensation, general liability and umbrella/excess each increased 4%.

No line of coverage experienced a decrease.

Richard Kerr, CEO of MarketScout, noted in a statement that rates increased for all types of accounts. Small accounts moved “from plus 4% in June to plus 5% in July,” he said. “Jumbo accounts increased one percentage (point) to plus 2%.”

All rates are up, which means your clients are shopping around for better pricing. What makes you better than the broker up the street, or the other 20 brokers in town, five of which specialize in the same field of insurance as you? Offer your clients workers compensation premium recovery and keep them happy for a very long time with workers compensation refunds.

August 6, 2012

According to the state-chartered carrier's annual report on Friday, New York State Insurance Fund increased its share of the marketplace from 31% in 2010 to 38% in 2011, although its net income dropped drastically from $400.4 million in 2010 to $5.4 million in 2011.

NYSIF reported a $539.7 million underwriting loss while generating $597.5 million in investment income. NYSIF also paid out $78.6 million in dividends to policyholders in 2011, almost double that of 2010.

NYSIF's increased share in the marketplace means that their net written premium increased from $1.31 billion in both 2009 and 2010 to $1.5 billion in 2011. However, total surplus declined from $2.82 billion in 2010 to $2.80 billion in 2011.

At the end of 2011, 166,087 employers were insured by NYSIF.

NYSIF is continuing to grow and it currently provides workers compensation insurance for well over a third of New York State employers. This does not bode well with brokers and private carriers who feel that NYSIF has been given monopolistic powers that prevent real competativeness in the marketplace. Chances are that you currently have clients who are already among the 166,087 New York employers insured by NYSIF and you have other clients who will soon be joining them through poor experience. Through workers compensation premium recovery, you can reduce your clients' mods to take them out of the State Insurance Fund or prevent them from having no options other than the State Insurance Fund. Not only will you, as the broker, maintain current cilents and win new prospects, you will continue to earn commissions placing business with private carriers, as well as earn first-year and renewal commissions through partnering with us in workers compenstion premium recovery.

PropertyCasualty360

July 31, 2012

A survey of property and casualty insurance brokers lends further evidence that rates are continuing to move upward, but experts still doubt whether a hard market is on the way, and some question the current environment’s momentum.

The Council of Insurance Agents & Brokers released its second-quarter Commercial Property and Casualty Index Survey today, which indicates average rates for all sizes of accounts rose 4.3 percent during the period.

Small and medium size accounts saw increases of 4.3 percent and 4.9 percent respectively. This compares to increases of 4.2 percent and 4.9 percent for the prior year’s second quarter.

Large accounts experienced the only drop in price increases, moving from up 4.1 percent in the first quarter of this year to up 3.7 percent for the second quarter.

“There’s no doubt it was a tougher market for buyers the last three months than the quarter before,” says Ken A. Crerar, president and chief executive officer of the CIAB in a statement.

“Rates continued to climb as insurers tightened reins on underwriting. More business was being pushed into the surplus-lines market as carriers pulled back on capacity, particularly for catastrophe exposures.”

Robert Hartwig, president of the Insurance Information Institute, Inc., calls the report further indication that rates are increasing at a flattening pace and that there was little to be surprised about.

“The fundamentals in the market are such that they do suggest that pricing does need to continue to firm, but there are no catalysts in place for a traditional hard market,” says Hartwig, who defined a hard market as price increases in the double digits.

Hartwig says that one element that is keeping the industry from moving into a robust hard market is plentiful capacity, despite last year’s catastrophe losses.

However, several lines of business, according to the report, are showing signs of greater increases. He noted Workers compensation, property and directors and officers as three of those lines.

Of the brokers surveyed, 33 percent say their client’s rates rose in the range of 10-20 percent for workers’ comp. Twenty-seven percent of brokers say clients’ rates rose by double digits for commercial property, and 14 percent say client’s saw double digit increases on their D&O coverage.

Hartwig says workers’ comp needs to harden because combined ratios are well over 100, and with investment yields low, “it will take years to turn around that line.”

The CIAB’s survey is only one of a few reports that have come out, along with earnings releases, to indicate that rates are on the increase, but James B. Auden, managing director at Fitch Ratings, says, “We wonder how much momentum there is.”

He says industry fundamentals, low interest rates producing small investment yields, and declining favorable reserves would indicate increases going into at least early next year.

While the industry is likely to see a much narrower underwriting loss than last year, assuming normal catastrophe losses, Auden says that until the industry gets to a combined ratio in the mid-90s, insurers will not return to underwriting profitability.

“The current rate improvement is more in reaction to recent losses than a change in competitive dynamics,” says Auden. “We don’t know if the current market has enough momentum to get back to [the hard market of mid-2000s] because of competitive factors and the amount of capital deployed in the P&C business.”

A hard market, he says, won’t come until capital is removed from the market, and that will not happen unless there is a monumental event to alter the dynamics of the marketplace or insolvencies to drain capital. 

Workers compensation continues to be the toughest line for insurance companies to make a profit on. As this article points out, workers comp pricing continues to rise and insurance companies are becoming more and more selective.

Brokers that offer their clients solutions with real savings that require no out-of-pocket expenses will maintain their clients and win new business. Offer your clients workers compensation premium recovery and reassure them that you are the best broker for their business.

July 30, 2012

DePaolo's Work Comp World

An interesting thing happened on my way to the [residual] market the other day – there were a lot more businesses in there than last year.

Business Insurance

July 25, 2012

Workers compensation insurance prices rose about 9% during the second quarter, Liberty Mutual Group Insurance's President and CEO David H. Long said today during a quarterly results teleconference.

And the insurer is still seeking price increases across all its commercial-lines business “led by workers comp and property,” Mr. Long said.

“I have said it before, much more is needed for us and for the industry to become profitable in that line,” he said.

His statements are just one more confirmation that you can expect workers compensation renewal pricing to continue trending up.

Workers comp pricing is on the rise. A recent blog shows state insurance funds are picking up more business. What does this mean? Brokers that can't stay competative in this marketplace will either lose clients to other brokers or to state insurance funds. The easiest way for a broker to help his/her client have a better underwriting profile in the renewal marketplace and to offer his/her clients additional services to show them that they are interested in saving them money is workers compensation premium recovery.

PropertyCasualty360

July 23, 2012

Remarkable unanimity reigns among the dozen carrier and broker executives offering their assessment of current conditions in the commercial-lines market.

Prices are clearly upward bound, with Workers’ Comp leading the way, followed by Commercial Property (especially in cat-prone areas). But new business is still being priced at lower rates than renewals.

Where are the opportunities in a highly mature U.S. market with a slowly recovering economy? Cyber is universally seen as an area of expanding exposures, with Environmental, Green Energy and Agriculture coverages also expected to help grow premiums.

And underwriters, thanks to ever-more-powerful data systems, certainly feel they are becoming more adept at differentiating among risk profiles, with this insight reflected in noticeably varying rates, deductibles, and terms and conditions among clients with exposures that share surface similarities (see Digital Extra).

What is keeping people up at night? The “new normal” in extreme weather, fracking, opioid prescriptions and low interest rates top the list.

If you want to maintain clients and win new business, make workers compensation premium recovery a real program at your brokerage. Partner up with Apex Services and you will distinguish yourself from the competition.