Workers Compensation Hard Market – The Facts Speak for Themselves

Business Insurance – June 28, 2012

Property/casualty insurers, including workers compensation underwriters, should continue realizing “the benefits of exposure growth that began in earnest last year,” Robert Hartwig wrote in a just-released first quarter results report.

“For example, the value of manufacturing shipments, has nearly returned to its pre-crisis peak,” Mr. Hartwig, an economist and president of the Insurance Information Institute wrote in his report, available here.

“Indexes of manufacturing and non-manufacturing activity through May 2012 indicate that expansion was continuing, despite economic turmoil in Europe,” he wrote.

Work comp exposure is measured by employer payrolls, and those are also up.

“The private sector created 2.105 million jobs last year, up from 1.423 million in 2010,” Mr. Hartwig continues. “Through the first three months of 2012, private sector employers added an additional 678,000 workers (and a total of 847,000 through May).

“Overall payrolls, the exposure base for workers compensation insurance, now exceeds its pre-crisis peak. During 2011, the unemployment rate ranged from a high of 9.2 percent in June to a low of 8.5 percent at year’s end. By March 2012, the unemployment had dropped still further to 8.2 percent.”

Yet, recent news reports point to continued slow economic growth and plenty of uncertainty ahead for the economy and workers compensation.

I am writing this just minutes away from the Supreme Court releasing its decision on the Health Care Affordability Act, which will certainly impact workers comp, although I am not certain how.

Meanwhile, Bloomberg just reported that “the number of applications for unemployment benefits hovered last week near the highest level of the year, showing little improvement in the U.S. labor market.”

So it’s not an entirely rosy outlook, but what lies ahead?

This article quotes Robert Hartwig saying "Property/casualty insurers, including workers compensation underwriters, should continue realizing “the benefits of exposure growth that began in earnest last year.” He also mentions that unemployment has gotten better. I have to agree with the last line in this article that the outlook is not entirely rosy. First of all, in my previous blog from earlier today, Bloomberg reports that unemployment is at its highest for the year. Second of all, I also blogged today that California reports that workers compensation insurance companies have been losing money since 2007. California is the largest writer of workers comp premiums. What I see is a very hardening market and workers comp is way ahead of every other line of insurance. Brokers should offer their clients value-added services that have no out of pocket expenses and offers cash back returns with future savings to keep. Offer your clients workers compensation refunds!

Workers Compensation Insurance Companies Lose on Workers’ Comp Claims Compared to Premiums

California is the largest state for workers compensation insurance premiums. So it's safe to say that if carriers in California are paying out $1.22 for every dollar of premium collected and have not made a profit since 2007, then workers comp clearly has not been a profitable line for insurance companies. We know that many states are increasing their rates and we know that many carriers are increasing their premiums, but only time will tell what increases will really work to make workers comp a profitable line for insurance companies. There are only three ways that a carrier can test the waters. Either stop writing comp, go out of business, or RAISE PREMIUMS. California sets the example for the rest of the nation. If you are a broker who has a large book of workers comp, you should consider ways to reduce your clients' premiums now! A simple and quick solution with no out of pocket expenses is workers compensation premium recovery.   

Kelly Johnson – Sacramento Business Journal – June 28, 2012

Insurers that cover Californians who are injured on the job lost a little more money last year on each buck of premium they collected, according to a new report.

California’s workers’ compensation insurers on average in 2011 spent an estimated $1.22 on claims and expenses for every dollar of premium they collected, according to the Workers’ Compensation Insurance Rating Bureau of California. That compares to $1.17 in both 2010 and 2009, $1.01 in 2008 and 85 cents in 2007.

The estimates do not account for premium or profits or losses that insurers passed along to reinsurers. The numbers also don’t take into account any deductible credits, rating plan adjustments or non-standard workers’ comp business, such as policies in which employers self-insure most of their risk.

Workers’ comp insurers earned premiums of $10.4 billion in 2011, compared to $9.6 billion the previous year, the Rating Bureau reported this week.

Some 74 percent of the premium dollars went for claims, with the other 48 percent going for expenses.

In other findings, the Rating Bureau reported that $4.4 billion, or 60 percent of the workers’ comp claims payments in 2011, were for medical services. The previous year the amount was $4.3 billion. Physicians picked up $1.5 billion of that $4.4 billion for their medical treatment— the same dollar figure as the previous year. Injured workers received $987 million in 2011, up from $822 million in 2010.

Medical cost containment programs, meanwhile, cost the workers’ cost system $384 million last year, the Rating Bureau said. That’s up from $356 million in 2010 and just $197 million in 2005.

Some $3 billion last year went to injured workers for lost-time benefits, including vocational rehabilitation benefits.

Bloomberg: Applications for Unemployment Benefits Near the Highest Level of the Year

Bloomberg – Jun 28, 2012

Claims for unemployment insurance payments decreased by 6,000 to 386,000 in the week ended June 23, according to Labor Department figures issued today in Washington. The revised 392,000 claims in the previous week matched the most this year. The Bloomberg Consumer Comfort Index also showed growing apprehension over the state of the economy.

Concern about the European debt crisis and the so-called fiscal cliff that the U.S. faces at the end of this year may prompt employers to keep payrolls lean, limiting the hiring needed to boost consumer spending. A 57-cent per gallon decrease in gasoline prices since early April is providing some relief, helping offset concern the job market is weakening by allowing employed Americans to stretch their paychecks.

“We’re going to see consumers be cautious over the next few months,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who projected 385,000 claims. “Spending is going to be soft, and I think it’s because of the job market. The labor market is not creating the wage income necessary.”

Stocks pared losses in the final hour of trading amid speculation European leaders were nearing agreement on ways to halt contagion from the debt crisis. The Standard & Poor’s 500 Index dropped 0.2 percent to 1,329.04 at the 4 p.m. close in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 1.58 percent from 1.62 percent late yesterday.

Europe Slums

Elsewhere, economic confidence in the euro area slumped in June to the lowest since October 2009, adding to signs the economy fell back into a recession, and German unemployment increased more than economists forecast.

The U.S. economy, the world’s largest, expanded 1.9 percent in the first quarter, the same as previously estimated, reflecting a gain in consumer spending that now shows signs of cooling, according to data from the Commerce Department also issued today. It grew at a 3 percent pace in the last three months of 2011.

The Bloomberg Consumer Comfort Index rose to minus 36.1 in the week ended June 24 from minus 37.9 in the previous period. The gauge of household finances was positive for the first time since April, while sentiment toward the state of the economy dropped to the lowest level since February.

The report also showed confidence among higher-income households turned negative for the first time in three months as Europe's debt crisis hurts stock prices.

Less Spending

“The decline in confidence among households earning more than $100,000 per year likely reflects concerns about portfolio exposure to the crisis in Europe and the global economic slowdown,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. Since the top 40 percent of income earners accounts for about 60 percent of consumer purchases,“even a modest pullback can have outsized effects on household spending and overall growth,” he said.

Shares of Coach, Inc. (COH), the largest U.S. luxury handbag maker, slumped 25 percent since the end of March through yesterday on investor concern that department-store sales are slowing.

“Obviously, the macro environment is uncertain and one of the things that we work hard to do is to navigate nimbly through that environment,” Chief Executive Officer Lew Frankfort told investors June 5 at a consumer conference.

Survey Results

The median forecast of 46 economists surveyed by Bloomberg projected jobless claims would come in at 385,000. Estimates ranged from 372,000 to 392,000.

The four-week moving average decreased to 386,750 from 387,500, which was the highest since the week ended Dec. 3.

Payrolls in May expanded by 69,000 workers, the slowest pace in a year, and have cooled each month since January. The jobless rate, which climbed to 8.2 percent in May, has been stuck above 8 percent since February 2009, the longest stretch of such elevated levels in the post-World War II era.

The employment report for June will be released on July 6.

“The problems in the job market that we saw in April and May have extended well into June,” said Sweet from Moody’s Analytics. “I think it’s going to be another disappointing report.”

Initial jobless claims reflect weekly firings and tend to fall as job growth — measured by the monthly non-farm payrolls report — accelerates.

Fed Action

Federal Reserve policy makers last week expanded a program to replace short-term bonds with longer-term debt in a bid to spur growth and trim a jobless rate that’s exceeded 8 percent for 40 consecutive months.

“There is no progress,” said Jeremy Lawson, a senior U.S. economist at BNP Paribas in New York. “There is clearly an underlying weakness that is troubling. The labor market is sputtering along, struggling to create jobs. The pace of consumer spending will slow in the second quarter.”

Retail sales fell 0.2 percent in May, matching the decrease in April, Commerce Department figures showed earlier this month. Sales excluding car dealerships slumped by the most in two years.

“The economy is really in a difficult spot at the moment,” said BNP Paribas’ Lawson. “With the labor market weak and the outlook for incomes weak, it’s hard to see how consumer spending can grow solidly.”

It's like I said in my interview with Program Business. Payrolls are down but rates are up, which means workers comp premiums are on the rise. Your clients will probably be shopping upon renewal because despite the fact that you tell them rates are up and that's why their premiums are going up, if they think their renewal premiums are a lot higher, they want to see if they can do better. Even the most loyal clients. Offer your clients to recover their workers compensation overcharges and you will cement your relationships when they get cash back returns.

Workers Compensation P&C Unit Chartis Reverting Name Back To AIG

Chartis to Switch Back to AIG Name

PropertyCasualty360

Chartis, the property and casualty unit of American International Group, will revert back to the AIG name, according to internal memos at the insurer, NU has learned.

AIG had rebranded its P&C unit as Chartis in 2009, and at one time considered making Chartis a separately traded, publicly held company.
 
In May of this year, John Q. Doyle, CEO of global-commercial business at Chartis, said there were no lingering reputation issues for the P&C business, and he said Chartis' international operations were "begging us to rebrand as AIG."
 
The latest news of a switch back to the AIG name would involve both Chartis' domestic and international operations.

AIG is reclaiming its great name. I've always found them to be a very good carrier for everyone. They work very well with brokers.

www.apexservices.com

Workers Compensation Premiums taking the lead as Insurance rates are firming worldwide: Marsh

Business Insurance – June 28, 2012

 

Rates in the global insurance market firmed in general, according to a new market index released by Marsh Inc. on Thursday.

The new Marsh Risk Management Global Insurance Index is based on renewal data from 20 major countries in casualty, property and financial and professional insurance lines. The composite index showed a 1.4% increase in rates at renewal during the second quarter of this year compared with the same period last.

Sixty-one percent of the U.S. companies in the survey experienced increases in property rates, with 14% reporting no change and the rest reporting decreases. For general liability, an equal percentage—41%— reported increases and decreases, with the remaining 18% reporting no changes. In workers compensation, 44% reported increases, 29% decreases and the rest unchanged.

“Rates for directors and officers liability insurance stabilized following nearly a decade of decreases,” according to Marsh. “Although the changes have so far been moderate, there are indications rates are firming.” According to the index, 49% of the publicly traded companies experienced D&O insurance increases, 41% decreases, and the rest flat.

Globally, rates for catastrophe-exposed property risks continued to climb in most countries. In Japan, increases typically were greater than 30% on renewal, while increases in the United States ran in the 10% to 20% range. Chinese risks, however, experienced rate decreases of up to 10%, according to Marsh.  

According to this article, 44% of workers compensation premiums reported increases bringing further proof that the workers comp line is hardening the quickest.  Brokers that offer their clients                            workers compensation premium recovery will maintain their clients despite premium hikes and will win a lot more business.  

 

Workers Comp Reforms In Illinois Showing Slow Results, Brokers Can Show Quick Results with Workers Comp Refunds

Despite reforms passed by Illinois lawmakers in 2011, the general consensus among employers is that rates are not decreasing, but they continue to rise. David Vaught, director of the state's Department of Commerce and Economic Opportunity is of the idea that it will be up to the insurance companies to pass along any rate reductions that the state has allowed them to implement while underwriting workers comp policies. According to Vaught, the only way that this will happen is through increased competition, as employers shop around for insurance.

If you are a broker in Illinois, this is not exactly good news. In order to reduce workers compensation costs, your clients may opt to go in a different direction with a new broker. You can, however, offer your clients workers comp refunds and get them back money on current and prior policy years, as well as future savings for them to keep. Brokers will earn first-year and renewal commissions and keep their clients for life!

Check’s in the mail on workers’ comp reform

State says still too early to test progress of reforms

Journal Star – June 25, 2012

There’s little evidence yet showing workers’ compensation reforms passed by state lawmakers in 2011 have sharply reduced costs for businesses that say those expenses make it hard to stay in Illinois.

A spokeswoman for the state’s Workers’ Compensation Commission and an official at a leading Illinois business group say the reform efforts must be given time to work. But at least one Peoria-area business has not seen much in the way of an impact so far from the reforms.

Meanwhile, Indiana still cites workers’ comp costs as a part of its recruitment efforts.

“It’s not just the (higher income) taxes” passed by Illinois lawmakers last year, said Indiana Commerce Secretary Dan Hasler. “Look at the differences in workman’s comp that people have to pay in Illinois vs. Indiana.”

Before the reforms went into effect, Illinois ranked third in the nation in workers’ compensation rates, according to a 2010 study by the Oregon Department of Business and Consumer Services. Bordering Indiana ranked 50th, Iowa ranked 36th, Missouri ranked 33rd, Michigan ranked 23rd, Wisconsin ranked 19th, and Kentucky ranked 15th out of 50 states and the District of Columbia.

When the reforms passed last year, policymakers predicted they would save Illinois businesses $500 million to $700 million a year. But the state is unable to put a dollar figure on what the savings has been so far.

The legislation made several major changes that are already in effect:

►It called for the hiring of new arbitrators who are licensed attorneys to decide workers’ comp cases. Those have been appointed by Gov. Pat Quinn and confirmed by the Senate.

►New staff have been hired at the commission to focus on efficiency, preventing fraud and internal audits.

►Medical fee schedules have been slashed by 30 percent, and wage differential awards have been capped. Under current law, if an employee’s earnings are reduced because of an injury, they’re entitled to receive two-thirds of the difference between their new wages and old ones. The new law ends that provision five years after the employee receives the award or at age 67, whichever comes last.

Two other changes — establishing a preferred-provider organization program for workers’ comp claims and upgrading computer systems at state agencies to make fraud detection easier — are in progress.

A year ago, policymakers predicted that cutting the medical fee schedule would result in most of the savings for employers. But now, the Quinn administration said the PPOs will do the most to cut costs for employers.

“Establishing the preferred-provider networks will also result in much of the estimated savings for businesses. As employers sign up, we will be able to better pinpoint these savings in the coming months,” said Anjali Julka, a spokeswoman for the state’s Workers’ Compensation Commission.

Some cost reductions

Mark Denzler, chief operating officer of the Illinois Manufacturers’ Association, said some employers are seeing reduced costs.

 “I think we’ve been fairly pleased with the results so far,” he said. “The NCCI (National Council on Compensation Insurance), which is a rating agency, recommended initially an average decrease of rates of 8.8 percent. There’s obviously some time to get some of the things implemented, like the PPO network. Some of those things are taking a little while longer to get implemented, but we’re starting to see some reductions in medical costs.”

Progress in some areas has been faster than others, Denzler said. The new arbitrators are working well, but the beefed-up fraud provisions still are in the nascent stages.

“You’re starting to see cases that are significantly less or, in some cases, rejected by arbitrators and commissioners. I think it was one of the quieter provisions not a lot of people focused on,” Denzler said.

“But I think the renewed professionalism, the new ethical standards, the continuing education requirements for arbitrators and commissioners is making a big difference.

“And also getting the attorney general and getting the fraud unit up and going, which was actually passed several years previously and funding wasn’t made available to it … we think that needs to be … enforced a little bit.”

Skepticism remains

Some businesses throughout downstate Illinois remain skeptical, however.

Marc Collins, associate risk manager for Core Construction Group in Morton, said his company has yet to see any decline in coverage rates.

“We’ve been told … that workers’ comp rates are going to go up,” he said, thanks to a hardening of the overall insurance market.

However, he did acknowledge some improvements in the arbitration system since reforms went into effect.

“I feel like we’ve got a better shot now, definitely,” Collins said.

But the system, in his eyes, still needs significant improvements.

“On a few things we’ve had to go in front of the arbitrator for in the last year, I still think that maybe there is a slight bias toward the employee,” he said.

Some of those experiences are echoed by Doug Knight, owner of Springfield’s Knight’s Action Park. He said his premiums have not gone down.

“Really, it was a token deal. I thought it really wasn’t reform,” Knight said. “Was it really a work-related incident or was it some health condition they held prior to coming on the job?

“Without significant reform, we’re not going to see rate reductions. It’s just not going to happen because the insurance companies still have to cover the loss whether it happened here or prior to here.”

Knight wants a provision in the law making employees prove that their injury was caused and occurred in the workplace, a legal concept called causation.

Bringing rates down

David Vaught, director of the state’s Department of Commerce and Economic Opportunity, said insurance carriers have been slow to pass down savings from the reforms to businesses, and other savings have not yet been realized.

“We’re hearing about it. They look at rates. They compare rates to other states. We’re generally higher,” Vaught said. “We’re concerned that it may take a little time for those reforms to work into the rates that companies get from their carriers.”

As businesses shop around for insurance, competition should bring rates down, Vaught said.

“In some cases, that is maybe as important and more important to them than tax rates because those can be significant costs for certain kinds of businesses,” Vaught said. “We’re not a state that sets insurance rates. It’s up to private sector to make own adjustment on their own schedule. There’s a tendency sometimes that these things stay up there a bit until the competition brings them down.”

But Vaught acknowledged that employers want relief now.

“It’s hard to be patient. You get a bill this month, you’ve got to pay it. I think we’re on the right track. There had not been workman’s comp reform in Illinois in 30 years,” Vaught said.

Mark Selvaggio, president of Selvaggio Steel in Springfield, said his rates have not been significantly affected either. For the system to improve, the state needs to do more to fight fraud.

“How many people have been incarcerated for fraud before or after these reforms were put in place? I think you’ll find that it is nobody. Fraud is rampant, and nobody cares,” Selvaggio said.

The total workers' compensation premiums written for Illinois employers:

2011: $2.42 billion

2010: $2.25 billion

2009: $2.35 billion

Source: Workers'  Compensation Commission

Workers Compensation Brokers Look for Ways to Keep Their Clients Out of the Assigned Risk Pool

June 25, 2012

According to a new residual market report by NCCI that came out on June 22, 2012 after six straight years of decreases, the number of new applications and the amount of new premium bound in the residual market started to grow in the second half of 2011 and continued to grow into the first quarter of 2012.

For the first quarter of 2012, the number of new applications seeking coverage in the residual market grew by 19 percent over the same period in 2011 and the new premium bound grew by 116 percent.

The residual market share of the total market has increased to 4 percent for Calendar Year 2011 for NCCI Plan-administered states, which is the first such market share increase in eight years.

This report is no surprise based on what’s been said at the 2012 NCCI symposium that there has been considerable growth in the assigned risk pool in the first quarter of 2012, as well as a 3% increase in claims frequency. Obviously blue-collar industries that have a high frequency of accidents tend to see their experience modification drive upwards and in many cases these companies are forced into the assigned risk pool. This is always a danger for brokers. Although their clients may continue to keep them as their broker while in the assigned risk pool, once their clients are in the assigned risk, there are many other brokers shopping to get these clients out of the assigned risk to win their business. It’s as if employers placed in the assigned risk pool are put on display and are there for the taking.

The easiest way for a broker to look good to a client or a prospect in this situation is through              workers compensation premium recovery. Fast results that will secure a client or prospect for life.

Workers Compensation Brokers Face Benefits and Challenges as Reserves Decline

Property/casualty insurer reserves declining: Analysis

Business Insurance

June 22, 2012

The U.S. property/casualty insurance industry's reserves are slightly deficient, investment bank Keefe, Bruyette & Woods Inc. said in a report issued Friday.

According to firm's “2012 Annual P&C Industry Reserve Review,” the positive reserve development the sector has seen in recent years will not continue.

“We estimate the P&C industry's loss reserves for accident years 2002 to 2011 are $3.0 billion (or 0.5%) deficient as of year-end 2011,” the report said. “We continue to believe most P&C insurers will see a drop-off in the earnings benefit they receive from favorable development.”

The report said that while reserves for accident years 2002 to 2007 remain redundant, accident years 2008 to 2011 are under-reserved, and New York-based KBW said it expects to see adverse development related to those accident years in the future. These adverse developments will be apparent on industry balance sheets, the report concludes.

Reserve charges expected

“We believe most P&C insurers will see a drop-off in the earnings benefit they receive from favorable development going forward, and we expect many companies will take reserve charges in the next couple of years,” according to the report.

Moreover, the report finds that reserve adequacy varies by line of business.

“Our analysis indicates the industry's reserves are redundant in private passenger auto liability, medical malpractice, and other liability lines, while reserves are deficient in the workers compensation, commercial multiple peril, products liability, and liability reinsurance lines,” said the report.

It's obvious from this article that insurance companies are lacking sufficient funds in reserves to pay for workers comp claims. This is another reason, on top of multiple other reasons, why we are going to see a major increase in workers comp premiums. On the one hand, this will obviously make it even more difficult for brokers to renew their accounts. On the other hand, brokers can offer their clients workers compensation audit reviews and they will get their clients cash back returns and keep them for life.

Travelers to Pay Premium Refunds; Joins ACE, Zurich, CNA, and PMA who Have Already Paid for Workers Comp Overcharged Premiums

Travelers Insurance Company will pay $10.5 million in refunds and penalties for violations of California insurance law. This is the same story all over again. This year it's Travelers in California. Last year, it was ACE, Zurich, CNA, PMA in New York. Brokers, there is plenty more money from these overcharges due to your clients. The fact of the matter is that insurance carriers are not going back to refund overcharges unless they have to.

It looks like the government is trying to catch the insurance companies overcharges to employers. Are you doing the same for your clients? This time, government agencies were the heroes. Next time, you can be the broker hero by getting clients money back from workers comp overpaid premiums. We help brokers do this every day!

Travelers to pay refunds, fine in California

Mon Jun 18, 2012 6:38pm EDT

(Reuters) – Insurer Travelers Companies will pay $10.5 million in refunds and penalties for violations of California insurance law in 2006, the state's insurance department said on Monday.

Travelers will refund $9 million to customers and pay a $1.5 million fine for violations in the first six months of 2006, the state said.

Examiners looked at nearly 1,300 policies and found about 220 errors, mostly related to improper underwriting or the improper application of rates.

The state noted it received "extraordinary cooperation" from the company in the course of its probe.

A Travelers spokesman could not be immediately reached for comment.

 

Insurers settle with N.Y. over comp overcharges

January 9, 2011

(Business Insurance) NEW YORK—Four insurance groups last week agreed to pay New York state nearly $120 million to settle workers compensation fee discrepancies.

ACE Ltd., Zurich Financial Services Group, CNA Financial Corp. and Pennsylvania Manufacturers' Assn. Insurance Co. agreed to the settlement to resolve allegations that they collected too much in workers compensation fees, the New York state attorney general's office said in a statement.

The New York State Workers' Compensation Board charges an annual fee of insurers that place workers comp business in the state, and insurers cover those fees with premium surcharges passed on to policyholders.

In 2000, the WCB adopted a new calculation method to determine the policyholder premium surcharges. As a result, some insurers collected too much from policyholders while others collected too little, according to the statement.

Former New York Attorney General Andrew Cuomo, who became governor Jan. 1, led the investigation after the state passed legislation in 2009 and 2010 to forbid such overcharging and recover the money from insurers.

Insurers said the discrepancy was ongoing since the 2000 shift, which created discord over how the annual surcharges were to be collected.

In a statement, Zurich-based ACE said it was “pleased to resolve this issue, which has impacted all insurers that wrote workers compensation coverage in New York since 2000.”

ACE, which agreed to pay $70 million under the settlement (see chart, page 3), said “the issue was caused by two conflicting state rules that created a discrepancy between the surcharge and assessment formulas that support the operation of the New York workers compensation system. This discrepancy resulted in the accumulation of funds over many years.”

ACE said the company fully complied with the state to collect specific premium surcharge amounts from policyholders and “made numerous attempts to address this issue with the state.”

In an e-mail, a spokesperson for Zurich said the insurer entered into an agreement with the WCB and New York attorney general to pay $37.5 million, which “resolves a difference of opinion as to the proper legal interpretation of laws enacted in 2009 and 2010 that imposed one-time assessments on certain insurers writing workers compensation insurance in New York.”

A spokesperson for Chicago-based CNA said the $5.75 million payment of excess funds to the state is neither a fine nor a penalty and that policyholders were not overcharged as far as premiums were concerned. The discrepancy was between how the surcharges were calculated by the WCB after 2000, the spokesperson said.

“The settlement resolved the issue created by a discrepancy in the definition of premium issued by the New York Compensation Insurance Rating Board and the New York workers compensation law,” Blue Bell, Pa.-based PMA Insurance Group said in a statement. PMA also said the state did not allege that policyholders were overcharged.

“I am pleased these members of the insurance industry and the state were able to reach an accord and hope that the spirit continues for the betterment of all New Yorkers,” WCB Chair Robert Beloten said in a statement.

The New York attorney general's office said the four insurers cooperated fully with the investigation. Other insurers that collected too much in surcharges should follow their lead “or they will be brought to justice,” Mr. Cuomo said in a statement issued before he became governor.

Visit us on the web at http://www.apexservices.com.

Apex Services Featured In Program Business Article!

A Close Look at the State of Workers Comp, Future Changes, & Solutions to Recovering Premiums

Featuring Simon Feuer, president, APEX Services

Posted on 13 Jun 12 by Program Business's Annie George

There has been much ado about the Workers Compensation market over the last several years, and particularly in the last six months or so. We’ve seen rate increases, a firming market, carriers struggling with underwriting profitability, a rise in claims frequency, and businesses paying more in premiums even though payrolls are down. Much of the talk in the industry centers around cost containment, loss control protocols, risk management, Return to Work programs, vetting out fraud, and, most importantly, getting a grip on ex-mod factors.

We wanted to find out more about the state of the Workers Comp industry, the impact of upcoming NCCI changes on ex mods, and how agencies can help customers to deal with rising Workers Comp premiums. We spoke with Simon Feuer, president of New York-based APEX Services, a leading national independent compliance audit firm for Workers Compensation premium recovery.

Annie George (AG): What are the issues plaguing the Workers Comp industry?

Simon Feuer (SF): “One the biggest issues facing the Workers Compensation industry is that year after year employers find themselves paying more for coverage while revenue and staffing levels have been significantly reduced or remain flat. This decrease in payroll and revenue does not correlate to the rate increases taking place in the Workers Comp marketplace. Let’s look at three states, for example: New York, New Jersey, and California. In New York, in October 2001 right after the World Trade Center bombing, which was when the market began to firm, the unemployment rate was 5.30%; in April of this year it’s at 8.10%. In New Jersey, the unemployment rate in 2001 was 4.60%, today it’s 9.10%; and in California, it was 5.90% and now it’s 10.50%. Overall, in the United States going back to May of 2001, the unemployment rate was 4.10%, today it’s 8.20% as of May 2012. That’s exactly double the rate from eleven years ago.

“Today’s ‘hardening’ market is taking place in a much different environment than in 2001. We’re seeing firming rates with double the unemployment – a dangerous place to be in. Employers today are experiencing increases in their premium rates but they’re not better off…in fact, they’re doing a lot worse, with less manpower, lower sales, and a decrease in income. You have higher unemployment with diminished revenue, with employers’ fees and charges continually going up.

“When the market hardened as it did the last time, businesses were doing well. When they were hit with premium increases, they weren’t pleased but it was part of the cost of doing business. Now employers are seeing increases and they’re not in a position to absorb these costs. They have to carry these costs while performing poorly.”

AG: What type of increase rates are we seeing?

SF: “New York filed a rate increase of 11.5% for October 2012, following a big increase last year. New Jersey had an increase this year of 6.9%. And, California just approved a 8.25% workers compensation advisory pure premium rate hike for new policies and those renewing on or after July 1, 2012 on top of an earlier increase of 37%. These are dramatic increases we’re seeing, while businesses are struggling,” explained Simon.

“When looking at what makes up the experience mod factor, payroll is the main determinate for a company’s allowable expected losses. The higher the payroll, the more room for expected losses. The big problem here is that, although company payroll has decreased due to layoffs and a retraction in hiring over the last several years, businesses are not experiencing fewer claims. Instead they’re seeing an increase in claims frequency, impacting the experience mod’s primary losses, which in turn drive the mod up. You’re allowed fewer losses because you have lower payroll, but in fact your losses are higher than what is allowable.”

The claims frequency is up 3% despite the lagging economy, according to the National Council on Compensation Insurance (NCCI Holdings). “The logic has always been that claims frequency is tied to the employment rate,” said Simon. “In this economy with high unemployment it’s perplexing as to why claims frequency has gone up – but this is what the data shows. And the bottom line is that companies that have more claims will drive their experience mod way up.”

The NCCI at its 2012 Symposium also revealed that the residual market [assigned risk] for the first quarter of this year experienced a 47% premium growth. What’s more, the major growth was seen in the sector exceeding $100,000 in premium. “What this is showing us,” explained Simon, “is that employers with poor experience and reduced payrolls are paying higher premiums and experiencing more claims, and ultimately brokers might lose these accounts to the assigned risk market or state insurance funds.”

Another issue that’s set to further impact the Workers Comp market is NCCI’s announcement last August that it will be increasing the split point value in the mod factor. “One of the most important factors in the mod is primary losses, which are frequency losses, as I mentioned before,” said Simon. “These losses represent claims that are currently $5,000 and under. Claim amounts that exceed $5,000 are considered excess losses. Primary losses have a greater impact on the mod than excess losses. The concern here is that these frequency claims will lead to some type of major severity loss in the future.”

“With NCCI’s announcement, the split point value will change so that over a three-year period the current value for frequency claims of $5,000 will increase to $10,000 for the first year, beginning in 2013. In 2014, this will increase to $13,500, and from 2015, the split point value will be $15,000 plus inflation adjustments. This ultimately means that more claims will fall into the primary loss category. According to NCCI, these changes are being implemented as the average cost of a claim tripled since the last split point update occurred two decades ago. NCCI basically sums up this new split point value by stating that ‘good mods will get better and worse mods will get worse.’

“With this change, employers with poor claims experience are facing major experience mod increases. To cover higher Workers Compensation costs, the employer might need to increase its bid or pricing on certain projects, causing the business to lose those accounts altogether. Also, many large companies refrain from hiring businesses with workers compensation experience mods greater than 1.00 if they’re doing some time of bidding work. Furthermore, there is a great risk that the insurance carrier will not renew the insured’s account, resulting in higher costs by forcing the employer to move into the assigned risk plan at a higher rate with an ARAP surcharge and possible loss of scheduled credits.”

AG: What steps can an employer and their agency/broker take to help stem rising costs, including the premium recovery program your company provides?

SF: “There are many cost containment steps and safety programs that one can implement. And, while safety and loss control programs are great and I believe a lot of employers have some sort of program, these are solutions that usually involve hiring a consultant for a fee and will only garner real benefits over time. The safety programs that usually show real results are ones that have someone at the employer overseeing the program and measuring results to find what really works.

“Based on the current workers comp market and continued rate changes needed to offset rising costs, in addition to the upcoming NCCI mod split changes, immediate results are needed to get immediate changes. The only immediate solution to reduce experience mods effective 2013, 2014, and 2015 is to change losses that have already occurred. For example, the 2013 experience mod utilizes losses from 2011, 2010, and 2009. In order to knock down an employer’s 2013 experience mod and most of the 2014 and 2015 mods, Workers Compensation premium recovery is needed. Safety and loss control protocols only affect forward solutions, but do have an impact on previous years. Workers Compensation premium recovery offers solutions going backwards and forwards.

“What always works well is when brokers and employers utilize insurance recovery services that have no out-of-pocket expenses and work on a no-recovery no-fee basis. It’s a win-win for everyone. Safety and loss control programs are great but they can be costly, and they require a lot of time and patience and someone to manage the programs daily to make sure that they’re actually effective and stay effective. With the service we provide, which is contingency-based, you have nothing to lose, and you get quick, quantifiable results. What’s more, if you are a broker, your clients/prospects will receive cash back returns on current and prior years’ workers comp policies and save on future years. You will not by maintaining current clients and winning new prospects, you’ll also give these employers a better underwriting profile in the renewal marketplace.”

Simon explained that through APEX’s website, brokers can calculate a minimum (loss free) mod and controllable premium in about 60 seconds for NCCI, New York, and New Jersey. “While this can be a helpful tool, you can’t tell employers you’re going to reduce their mod by 50 points. It will take years to accomplish this. We don’t recommend selling on minimum mods because, if I were an employer, I’d be watching those results. Rather, you can reduce an employer’s current and up to 6 prior years’ mods within just a few short months,” said Simon.

“Clients will stay with a broker for life when this happens, and prospects will listen when you show them some cash back returns. This is especially important now with many more of the larger brokers going after middle-market business, which will make it more difficult for current middle-market brokers to compete on price. Brokers that want to protect their book of business and cement new clients will need to use all the tools available to them. We suggest brokers begin with services that have no out-of-pocket expenses to them or their client/prospect. Plus, referring brokers earn first year and renewal commissions.”

For more information about Apex, please visit: www.apexservices.com. Or, you can call Simon at (888) 380-APEX (2739).