Business Insurance – July 1, 2012

Rising medical costs, insurer profitability affect overall pricing

Employers renewing their workers compensation policies likely will pay more for the coverage as claims costs rise and insurers' combined ratios deteriorate, experts say.

Purchasers of primary and excess workers comp insurance are seeing price increases, mostly in the single-digit range, brokers and insurers say, but insurers are fighting to hold on to favored accounts.

There also have been some increases in employer retention levels as insurers tighten their underwriting standards in an attempt to improve the line's profitability, they say.

“What we are seeing happening this year is that there is a growing recognition that changes need to be made in terms of workers compensation profitability,” said Curt LeBeau, vp of insurance operations in Milwaukee for United Heartland, a unit of Accident Fund Holdings Inc. “And I think most carriers are taking some type of action to try to improve their results in the workers comp line.”

Brokers also say underwriting standards are tightening.

“They are actually underwriting and looking at losses,” said Bob Jacobsen, area vp for brokerage Arthur J Gallagher & Co. in Chicago. “The discipline is certainly back in the marketplace and, unfortunately for buyers, that means they are all going to pay more, at least in the guaranteed-cost market.”

In general, the “cream of the crop” among guarantee-cost accounts are experiencing price increases ranging from about 5% to 7%, with some 10% increases, particularly in the Midwest, Mr. Jacobsen said. Similar accounts with loss-sensitive programs may see their pricing stay flat, “but those are harder to come by,” he added.

As I have repeatedly blogged in the past, workers compensation insurance carriers are increasingly losing money on every dollar of premium in claim costs. It wouldn't take a genius to figure out that this downward trend in workers compensation insurance profitability will lead to rate increases for employers all across the board. This could mean good news or bad news for brokers. The good news is that since rates and premiums are going up, brokers' commissions are going up. The bad news is that as your most loyal clients watch their premiums rise tremendously, they will go shopping no matter what you tell them; and there most likely will be a broker out there that will have a cheaper quote. Of course you could be a much better broker with much better service, but if you haven't offered your client some sort of savings lately to remind them of all the great work you do for them, they are leaving with the cheaper quote. So, offer your clients wokers compensation premium recovery. There are no out of pocket expenses. Brokers earn first year and renewal commissions. It's a win-win for everyone and you will certainly keep your clients happy!