NCCI Sees Continued Deterioration In Workers' Compensation Market
The National Council on Compensation Insurance, Inc. ("NCCI") has issued its annual "State of the Line" study which analyzes the entire workers' compensation market "from the implications of the overall economic environment, to current and expected industry conditions, to political considerations and more."(1)
Unfortunately, the report isn't good:
…our analysis this year shows that conditions in the workers’ comp industry continue to deteriorate. The line continues to experience an ever-lengthening list of challenges, including poor underwriting results, declining (albeit more slowly) premiums, an uptick in claim frequency, and an uncertain regulatory and inflationary climate.(2)
The reserve position of private workers' compensation insurers continued to decline in 2010, sinking another $1 billion since 2009 to an estimated total deficiency of $10 billion, according to the NCCI.(3)
In what it calls a "singularly distressing development," the NCCI reports that, in 2010, the workers' compensation industry has seen an estimated 9% increase in lost-time claims frequency after 12 uninterrupted years of lost-time claim-frequency decreases in NCCI states nationwide.
In somewhat more encouraging news, the "precipitous declines" in net-written premium for workers' compensation experienced by private carriers in the last few years appear to have slowed in 2010. Net-written premium for workers' compensation declined only 1.3% for private carriers in 2010, compared to a 20% decline from 2007 to 2009.
While workers' compensation insurance rates continued to decline in many parts of the country, the NCCI suggests that this trend could be turning around based on filed increases in loss costs/rates for the 2010/2011 filing cycle.
The NCCI notes a number of external forces on the workers' compensation industry, including what unknown residual impact the Patient Protection and Affordable Care Act ("PPACA") may have, as well as other regulatory concerns, such as the following:
The federal government also continues to erect its Federal Insurance Office and the Financial Stability Oversight Council, both entities that may ultimately make recommendations that affect the way that insurance markets in the United States are regulated. With some elements of the government calling for an increase in federal oversight and regulation of insurance, all system participants will be keeping a close eye on developments in the months to come.(4)
Medical-cost containment could be crucial to the workers' compensation insurance industry as a growing percentage of workers' compensation payments are going to medical expenses instead of replacement wages. Some suggest that the industry could see as much as 70% of the comp-claims dollar going to pay medical expenses.(5)
With PPACA looming over the industry and the ballooning costs of workers' compensation medical expenses, some have even suggested that the continued revamping of the health insurance system could eventually absorb the health insurance elements of workers' compensation. If PPACA or its progeny expand to cover workers' compensation medical costs, the future of a replacement wage-only workers' compensation industry is questionable.
The workers' compensation market faces other threats as well, including the ever-present risk of terrorism and the specter of new occupational exposures from emerging technologies.(6)
Additionally, the current trend of an increasingly older-and-aging workforce presents significant problems of its own, including increased severity of claims and potentially higher administrative costs as Medicare Secondary Payor issues become more common.
Finally, the "epidemic proportions" of obesity in the workforce is likely to continue to increase claims frequency and medical expenses.(7)