Fitch: Workers' Compensation Remains Weakest Commercial Lines Segment

Workers' compensation, the largest commercial lines segment representing approximately 18% of commercial lines net written premiums in 2011, posted a statutory combined ratio of 117% in 2011, according to a new report by Fitch Ratings. This result is 9.5 percentage points worse than the commercial lines aggregate for 2011 and the worst result in the past 10 years for the workers' compensation line.

'Recent premium rate increases in workers' compensation are an encouraging sign that the market has reached a cyclical bottom,' said Jim Auden, Managing Director at Fitch. 'However, claims costs will continue to be affected by rising medical severity and premium rates will need to improve significantly further for the market to reach an underwriting breakeven.' Fitch estimates that it will be difficult for the workers' compensation market to have a combined ratio of 110% or better in 2012 or 2013 without significantly more price improvement.

Workers compensation has generated reserve deficiencies from prior underwriting periods in the last three consecutive years. 'Fitch believes that workers compensation reserves at year end 2011 are one of the weaker segments from a reserve adequacy perspective for the property/casualty industry, and industry results will continue to be affected by unfavorable reserve development going forward,' said Auden.

From a ratings standpoint, overall underwriting performance is given greater consideration than individual lines' results. However, workers compensation is a source of significant underwriting volatility for commercial lines insurers, and signs of a cyclical turn from recent weak performance levels will promote stability in ratings in the near term.

Fitch's report analyzes the workers' compensation market and the factors currently influencing the market. In addition, it reviews the results of the top 15 workers' compensation underwriters and the shifting market composition over the last five years.

Per this article, 2011 has had the worst results in the workers comp line in the past 10 years. Also, it doesn't seem like that there will be better ratios for 2012 and 2013 without significant price improvement. To me, this article sums up the fact that the workers compensation market will probably experience a hardening market the quickest out of all commercial lines based on poor claims results and a continued lack of sufficient rates despite already numerous rate hikes in various states with carriers lacking investment income. How are carriers making money now in workers comp if they are servicing blue-collar industries? My suggestion to all brokers is to look for every possible way to reduce your clients' premiums. Look for the same strategy to win new business. Start with services that have no out-of-pocket expenses to you or your client/prospect.

June 11, 2012, 9:05 a.m. EDT

SOURCE: Towers Watson

NEW YORK, Jun 11, 2012 (BUSINESS WIRE) — Commercial insurance prices in aggregate increased by nearly 5% during the first quarter of 2012 — the fifth consecutive quarter that prices rose for all standard commercial lines. In addition, commercial insurers' loss ratios stabilized for most insurance lines and improved in lines with the largest price increases, according to the most recent Commercial Lines Insurance Pricing Survey (CLIPS) released by global professional services company Towers Watson (NYSE, NASDAQ: TW). The survey compared prices charged on policies underwritten during the first quarter of 2012 to those charged for the same coverage during the same quarter in 2011.

CLIPS data revealed that the largest price increases were once again in workers compensation and commercial property. Workers compensation prices increased for the fifth consecutive quarter, after flat pricing in all of 2010, while commercial property prices rose for the fourth consecutive quarter.

"We are seeing a continuing trend of price-level increases in the commercial insurance marketplace," said Thomas Hettinger, property & casualty sales and practice leader for the Americas at Towers Watson. "This quarter, the industry reached a significant threshold — an aggregate price increase of nearly 5% — the largest quarterly increase we've seen since 2004."

Price increases were observed across all account sizes for standard commercial lines, with the most significant increases observed in mid-market accounts. Specialty lines lagged, with much more modest increases (less than 2%).

Historical loss cost information reported by participating carriers points to a deterioration of less than 1% in loss ratios for accident-year 2012 data compared with 2011, a more favorable indication than the estimated 3% deterioration between 2010 and 2011. Data from the lines with the largest price increases — workers compensation, commercial property and general/products liability — indicate improving loss ratios.

"We are likely to see improving loss ratios in the near future if this level of price increases and loss trends continues," said Hettinger. "This would be welcome news for the insurance industry, which has been dealing with low asset returns and significant catastrophe activity for the last few years."

About CLIPS

CLIPS data are based on both new and renewal business figures obtained directly from carriers underwriting the business. This particular survey compared prices charged on policies underwritten during the first quarter of 2012 to the prices charged for the same coverage during the same quarter in 2011. For the most recent survey, data were contributed by 40 participating insurers representing approximately 20% of the U.S. commercial insurance market (excluding state workers compensation funds).

CLIPS participants represent a cross section of U.S. property & casualty insurers that includes many of both the top 10 commercial lines companies and the top 25 insurance groups in the U.S. Measurement of both pricing changes and loss ratio changes also sets CLIPS apart from other studies. Participation in CLIPS has been strong, as carriers believe it provides a more accurate picture of price changes, and find it useful in setting assumptions for product pricing and estimating claim liabilities.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at towerswatson.com.

This is what we've been saying all along. Workers' comp premiums continue to rise. What are you, as a broker, doing to show your clients you've gone the extra mile? There are many simple things you can be doing as a broker and even get rewarded for them! The time to take advantage is now. You don't want to wait till it's too late.
 

By Chad Hemenway, PropertyCasualty360.com

June 6, 2012  

MarketScout says the composite rate for commercial insurance placed in the U.S. in May was up 4 percent compared to the same month a year ago.

In his comments on the month’s rate activity, Richard Kerr, chief executive officer of MarketScout, predicts additional increases in pricing for jumbo accounts (more than $1 million) as insurers self-cure themselves from what he calls the “Show Pony Syndrome.”

“It’s not unusual for underwriters to aggressively price jumbo accounts because of the cache they bring,” Kerr says. “Fortune 100 ‘Show Pony’ accounts bring bragging rights, but sometimes rates do not justify the exposure.”

Pricing for jumbo accounts was up 1 percent in May. Small and medium accounts were up 4 percent, with large accounts seeing a 3 percent increase in pricing, according to MarketScout’s Market Barometer.

“Some major insurers value Fortune 100 accounts more than they would a spread of 100 accounts at the same premium with significantly lower loss ratios,” Kerr adds. “Economically, it doesn’t make sense but a few major commercial insurers are extremely aggressive when pricing jumbo accounts.”

Kerr adds that it is difficult to compare jumbo accounts to smaller accounts because the jumbo accounts involve captives, high retentions and heavy reinsurance.

By coverage class, pricing in workers’ compensation and commercial property was up 5 percent. Pricing for business owners’ policies was up 4 percent.

By industry, 4 percent increases were seen in manufacturing, contracting, habitational and transportation. Three percent increases were observed in service, public entity and energy accounts, says MarketScout’s analysis, which is aided by a pricing survey conducted by The National Alliance for Insurance Education and Research.

Commercial property and casualty rates were up 3 percent in April compared to April 2011.

Hey brokers, the good news is that premiums are going up. The bad news is that it's getting harder to keep clients and win new business unless you have an edge. A good example for "edge" is getting a client or prospect back lots of money with no work on their part and no out-of-pocket expenses. Just cash back returns. If you do this for your clients, you are not just another broker. You're a hero.

Business Insurance

Sheena Harrison

June 5, 2012

CHICAGO—The property/casualty insurance market is hardening, but it is unclear whether rate increases are here to stay, panelists said Monday during the 2012 Harold H. Hines Jr. Memorial Symposium.

Three panelists discussed the evolving market and economic challenges during the symposium, titled “Navigating the Changing Marketplace.” About 150 attended the afternoon event at the Union League Club of Chicago.

Matt Keeping, New York-based chief placement officer of Willis North America Inc., said insurance markets appear to be firming. But he noted that insurers have "plenty of capacity," which is helping to drive a competitive insurance market across various lines.

“There are plenty of options for clients,” Mr. Keeping said. “It's a question of being able to weigh out those options….Staying with the same carrier may not always be the right thing to do. Actually, changing may not be the right thing to do either. It's quite a complex environment that we're working in at the moment.”

Thomas F. Motamed, Chicago-based chairman and CEO of CNA Financial Corp., said he has observed a “transitional” insurance market in recent months, in which some accounts still are experiencing rate reductions.

“People are quoting new business, in some cases aggressively,” Mr. Motamed said. “So it is definitely not the hard market that many of us seniors remember from prior decades. I think the markets are reprofiling.”

A crazy market means brokers better prepare renewal strategies way in advance and show clients all the savings they have obtained for them!   

Minnesota has joined New York as far as independent bureaus that have approved the split point change, effective 1/1/2013. Details are in this circular on their website.

Workers Comp brokers that have clients with high mods better get their clients' mods knocked down asap. Based upon the fact that most of the claims experience going in to the 2013, 2014 and 2015 mods are on prior years, there is only one way to knock down these mods—workers compensation premium recovery for brokers and their clients.  
 

Source: California Department of Insurance

California Insurance Commissioner Dave Jones on Tuesday approved an advisory pure premium of $2.49 per $100 of payroll, effective July 1.

The new advisory rate is 8.26% higher than the $2.30 rate that took effect Jan. 1. The Workers’ Compensation Insurance Rating Bureau recommended a rate of $2.51, but Jones said in his order he approved a slightly smaller increase because the Rating Bureau recommendation included data from State Compensation Insurance Fund.

The new rate is also 3.3% higher than the industry average charged rate of $2.41 as of Jan. 1, 2012.

Jones said in his order that costs continue to increase, but for the time being, the average price charged to employers has held steady.

“Two conclusions can be made from this: First, it appears that, at least for the present, competition in the workers’ compensation insurance market and the surplus and capital position of insurers and associated returns are keeping premium increases in check,” Jones wrote. “Second, and as equally important, with increasing costs and the draw down of surplus and capital, this pricing trend will now continue. Eventually, premiums will increase for employers.”

Recently we wrote about the big announcement by NYCIRB to raise loss costs by 11.5%.  This week, we see WCIRB is following suit with an approved 8.26% increase in rates.  Brokers should ask themselves how they’re different than the competition.  If you’re a broker with big workers’ comp premiums in your book, make sure you have a tool that maintains clients and wins new business with no out-of-pocket expenses to yourself or your clients and offers you a revenue stream.

Business Insurance

After workers compensation insurers experienced another tough year during 2011, guaranteed cost and monoline programs “will likely be more difficult to place,” states a recent market quarterly report from Marsh USA.

“Some carriers are unwilling to compete on a monoline basis, or are requiring supporting business,” states Marsh's Global Insurance Market Quarterly Briefing: Q1 2012.

Comp Time believes the trend of large insurers turning down monoline business started last year.

Marsh's report discusses a broad range of coverages, not just workers comp insurance.

Also, in a recent Marsh webcast a Marsh broker points out that workers comp insurers are looking for price increases across their entire portfolios with guaranteed cost buyers feeling the price hikes the most.

That is usually how it goes for guaranteed cost buyers when the market begins firming.

But all employers are feeling the sting of medical inflation and increased workers comp frequency.

Here's my take: Most employers are on a Guaranteed cost program. The rate increases from loss cost filings, assesments, and the new 2013 mod split point are going to drive premiums way up and schedule credits are not going to win renewal business. I know all this because I just spoke to some middle market brokers about their APRIL renewals and their comment was "rough times" and we are still in 2012, not 2013. Brokers will have to get their clients' loss experience into marketable shape if they want carriers to quote the business. Brokers are going to have to show their clients "why they're different" or they are going to lose a big piece of their book quickly. Everybody agrees the market is changing, there are only three questions 1) how quick 2) how severe 3) who will turn this hardening market into a broker opportunity!

BREAKING NEWS IN NEW YORK:

This is exciting news for brokers as premiums are on the rise again. However, there is a great danger here for brokers whose clients have poor experience because big jumps in premiums upon renewal sends clients shopping.  Are you a broker who has exhausted all value-added service to show client that you've been doing everything possible for them?

RE: NYCIRB October 1, 2012 Loss Cost Filing

This is to inform you that the New York Compensation Insurance Rating Board (NYCIRB) has submitted a loss cost filing to the Department of Financial Services (DFS) for an overall average loss cost change of +11.5%. The change in loss cost represents the anticipated cost of losses and loss adjustment expenses to be incurred on policies incepting on or after October 1, 2012.

The proposed change is the result of continued adverse experience of the New York Workers Compensation carriers and is attributable to the following factors:

 – While the 2007 reform has been fully implemented with respect to the increase in maximum weekly benefits, sections of the reform which were expected to result in significant savings have been implemented at a slower pace.

 – Claim frequency is no longer exhibiting a significant downward trend which, in the past, served as an offset to increasing claim costs.

 – Continued rise in both indemnity and medical claim costs.

 – Increasing Loss Adjustment Expense primarily due to additional resources necessary for compliance with recent legislative and regulatory changes.

In addition to the above, based upon information received from the Workers’ Compensation Board (WCB) and the current loss cost proposal, it is currently estimated that the New York State Assessment will decrease 2.7% resulting in an average net increase in cost to policyholders of 8.5%.

In compliance with 2008 legislation, the DFS is required to hold a public hearing on the loss cost filing whenever the filed amount exceeds 7.0%. Once the date, time and location of the hearing are set, the NYCIRB will issue a bulletin with the necessary information.

If you need a weapon to keep your clients happy, see how Apex Services Broker Division can be your partner in client retention.

In a report titled “U.S. P&C Insurers’ 1Q12 Earnings Improve on Lower Cats; Pricing Momentum Continues,” Moody’s says insurers achieved rate increases across nearly all lines of business in the quarter, driving net written premiums up 4 percent for Moody’s rated companies compared to 2011’s first quarter. “Underwriting standards are becoming tighter in conjunction with a gradually improving cycle across most lines of business,” says Moody’s.

Citing pricing surveys and conference calls, Moody’s says commercial-lines insurers are reporting mid-to-high single-digit rate increases, with property and workers’ compensation showing the steepest hikes.

As we keep telling all our broker partners nationwide, workers comp is becoming tighter and tighter.  Selling workers comp premiums is becoming more attractive as a lead sell with bigger commissions. But it is also becoming a much more focused sell.  Do you have the continued resources to remain competative and therefore be able to sell your accounts and prospects to the workers comp carriers in this changing market? I suggest you start by making your accounts look as good as they can when the insurance companies ask to review their claims history upon submission of new or renewal business.

In a previous blog we mentioned residual markets in the first quarter of 2012 saw a 47% premium growth. This is not positive, according to NCCI President Stephen Klingel, because the major growth was seen in the premium sector, exceeding $100,000 in premium. As residuals grow there is tendency that they become less self-sustaining, and it becomes difficult to maintain pricing differentials to meet the growth in risk inherent in a growing residual market.

This report given by NCCI at the annual NCCI symposium proves that one of the reasons the assigned risk saw a 47% premium growth in the first quarter of 2012 is because brokers are starting to have a difficult time placing workers compensation insurance in the private marketplace as rates firm.

Look now for better ways to present your book of business to the insurance companies and make your business the business they want.