Workers Compensation Issues and Trends 2007—The NCCI Perspective
May 2007
The Annual
Issues Symposium—2007 presented by the National Council on Compensation
Insurance Inc (NCCI) provided insightful information related to workers compensation
and also offered some interesting perspectives on other issues and trends that
effect the insurance industry as a whole.
by Christine Fuge
IRMI
NCCI President and CEO Steve Klingel opened the symposium with a presentation
entitled "Workers
Compensation: An Effective Public/Private Partnership". Mr. Klingel reviewed
the workers compensation system from the viewpoint of its three participant
groups: injured workers, employers, and insurers. Using statistics from various
insurance and governmental sources, he made a very compelling case that for
all the rhetoric, the workers compensation system is meeting the needs of its
shareholders.
The workers compensation "State
of the Line" was delivered by NCCI Chief Actuary Dennis Mealy. He provided
an overview of the property/casualty market results before delving into data
specific to workers compensation. Of particular note with respect to the workers
compensation is that the preliminary calendar year ratio (private insurers)
for 2006 is 96.5 percent, the lowest the ratio has been in at least 30 years.
However Mr. Mealy cautioned that this ratio would be 8-10 percentage points
higher if the good loss experience from California was removed from the mix.
Additionally, medical costs continue to climb as a percentage of total losses.
In the last 20 years, the medical portion of losses has climbed from 45 percent
of the total to 59 percent in 2006. This is not surprising since medical claim
costs have been on an upward trend since 1994 with an annual change for the
period of 1997-2005 at +9.5 percent.
Analysis of Workers Compensation Medical Cost Drivers
Since medical claim costs continue to escalate outpacing inflation, two presentations
were devoted to taking a closer look at what is driving these cost increases.
NCCI Practice Leader and Senior Actuary Barry Lipton presented the "Prescription
Drug Study 2007 Update". Based on information gathered, he indicated that
there appears to be a temporary leveling off of the prescriptive drug share
of medical costs. But utilization remains the most significant driver of medical
costs. The most popular drug group prescribed for claimants in 2005 were anti-inflammatory
and pain relief drugs, accounting for about one-half of the total amount paid
for drugs.
The analysis of medical costs drivers continued with NCCI Practice Leader
and Chief Economist Harry Shuford presenting "Measuring
the Factors Driving Medical Severity: Price, Utilization, and the Mix".
From NCCI's analysis, he advised that claim medical severity continues to trend
upward. Some of the factors cited as being responsible for the ongoing escalation
of medical severity in workers compensation claims include price increases,
the growth in the number of treatments, and the shift in the mix of the type
of claims and treatment/services provided.
Workers Compensation Regulatory/Legislative Environment
Unlike other lines of property and casualty insurance, workers compensation
is significantly impacted by the laws and regulations that govern it in the
51 jurisdictions. But workers compensation, along with the other property and
casualty lines of coverage, seems to face the potential of an ever expanding
role of governance from the federal level. Helen Westervelt, president of NCCI's
Regulatory Services offered an overview of the legislative/regulatory trends across the country as well as those perking
at the federal level. An update on "Key
Federal Issues" was then provided by Mary Jane Cleary, NCCI's Washington
Affairs Executive. A couple of issues that she reported on included the status
of a Terrorism Risk Insurance Extension Act (TRIEA) extension and efforts to
amend the McCarran-Ferguson Act. Cleary was followed by Mona Carter, National
Policy Executive with NCCI who discussed "Multi-State
Public Policy Issues". Included in her discussion was an update on the continuing
challenges related to professional employers organizations (PEOs) and independent
contractors that face regulators. The final segment in the regulatory/legislative
module concerning "Regional
Trends" was delivered by Senior Division Executive—State Relations Peter
Burton and Practice Leader and Senior Actuary Jeff Eddinger, both with NCCI.
The pair supplied a state-specific review (grouped by region) of current rate
changes and legislative initiatives.
Insurance Industry Issues
The NCCI symposium additionally offered a forum for several topics that,
although very relevant to workers compensation, also have broader implications
for the entire insurance industry. Insurance Information Institute (III) President
and Chief Economist Robert Hartwig offered his forecast for the future of the
industry via his presentation "Overview
& Outlook for the P/C Insurance Industry: An Industry at the Crossroads".
Some of the observations he made as part of his analysis are that the record
underwriting profit of 2006 is unsustainable, the 2007 market can expect to
draft off the momentum of the 2006 market, rising investment returns will not
be sufficient to support a deep, soft market, and that underwriters must continue
to truly underwrite accounts to facilitate the profitability of the industry.
Katherine Swartz, professor of Health Economics and Policy at the Harvard
School of Public Health, provided a report on "Financing
Healthcare in the US—the Outlook for Reform". She advised that in 2005,
46.6 million Americans were without health insurance. Of that number, 58 percent
fall in the 19-44 age range and 30 percent were considered middle class (having
an income above the median of $46,300). Swartz suggested that these statistics
serve to illustrate why there is more pressure to find solutions about how to
fund health care and how to make it more accessible. States like Massachusetts,
Vermont, California, and Illinois are in the process of trying to work through
these issues.
"Influenza
Pandemic Risk: Potential Impact on the Workers Compensation Market" was
presented by Peter Ulrich, senior vice president of Risk Management Solutions.
According to Ulrich, a pandemic is not a question of if—but when. As a consequence,
even if the workers compensation insurance industry does not pay any claims,
it will still be faced with significant legal costs associated with defending
against the compensability of such claims. He urged businesses to design and
implement business contingency plans that include provisions for pandemic disease.
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