Workers Compensation Issues and Trends 2009—The NCCI Perspective
May 2009
The Annual Issues Symposium—2009 produced by the National Council on Compensation
Insurance Inc (NCCI) offered pertinent and timely information related to workers
compensation. The meeting also provided a forum for the presentation of useful
material pertaining to trends and issues that affect the entire insurance industry.
by
Christine Fuge
IRMI
The symposium kicked off with a comprehensive review of the workers compensation
"State of the Line" delivered by NCCI Chief Actuary Dennis Mealy. He began
his presentation with a synopsis of the current results for the property/casualty
industry. The 2008 net combined ratio for private insurers was 105 percent,
up 10 percent from 2007's 95 percent. But a significant portion of the ratio
increase was attributable to losses sustained by mortgage guarantee and financial
guarantee insurers. When these losses are removed from the 2008 results, the
ratio drops 4 percentage points to 101 percent. And while the investment gain
ratio for 2008 was half of what it had been in 2007, another major indicator
of insurer financial health, the 2008 premium to surplus ratio for private insurers
remained strong.
Moving on to review workers compensation results, Mr. Mealy revealed that
the 2008 preliminary calendar year combined ratio remained level with that of
2007 at 101 percent. And there are other relatively positive indicators for
the line. Lost time claim frequency continues its downward spiral dropping another
4 percent from 2007 to 2008. And the depopulation of the residual market persists
unabated. Between 2004 and 2008, premium in NCCI-serviced residual markets dropped
50 percent. But for all the positive factors there are also several negative
indicators, as well as a few unknowns that could impact the future performance
of the line. Medical claim costs continue to escalate outpacing inflation. Low
investment returns on insurer portfolios persevere as a consequence of the current
economic conditions offering insurers no relief in offsetting underwriting losses.
And insurers are also facing an uncertain political climate with the specter
of national regulation looming.
Mr. Mealy ended his presentation with an update on the new rate making methodology
that NCCI has developed for use in the jurisdictions where it functions as the
rate making organization. The goal of the new methodology is to provide more
stability and equity in the rates. NCCI expects to utilize this new methodology
for all rate filings beginning with those effective October 1, 2009.
Workers Compensation Current Considerations
Several presentations were also offered that drilled down into workers compensation
topics of current interest. A panel of workers compensation experts took a look
at
legislative trends at both the state and national level. With new Medicare
reporting requirements for workers compensation losses becoming effective July
1, 2009, three well-timed presentations were delivered highlighting
Medicare's impact on workers compensation, the recent
federal legislation that brought about the reporting requirements, and a
case study related to the use of
Medicare set-asides in California.
A third workshop presented by NCCI staff highlighted their research on a
variety of topics. NCCI Practice Leader and Senior Actuary Barry Lipton reviewed
the duration of temporary disability benefits being provided injured workers
offering insight about the key drivers that influence the length of time benefits
are paid. Mr. Lipton also addressed the
role of narcotics in workers compensation claims advising that the narcotics
share of drug dollars has been relatively stable for the period 1999-2007 with
drugs containing Hydrocodone or Oxycodone accounting for almost 80 percent of
narcotic prescriptions.
Also included in the workshop was a presentation by NCCI Practice Leader
and Chief Economist Harry Shuford regarding the
impact of recessions on workers compensation. Mr. Shuford's discussion concentrated
on the review of five workers compensation factors affected by recession: exposure
base, claim frequency, indemnity and medical severity, indemnity and medical
loss costs, and investment income.
Insurance Industry Concerns
In addition to the presentations focused on workers compensation, Insurance
Information Institute (III) President and Chief Economist Robert Hartwig shared
his thoughts about the state of the P&C industry focusing on the impact of the
financial crisis and the factors that could shape the industry's future in his
presentation
"Financial Crisis, Economic Stimulus & the Future of the P/C Insurance Industry:
Trends, Challenges & Opportunities." Key observations from his analysis
follow.
- Late this year the economy will begin a slow, sluggish recovery.
- The P&C industry can expect federal regulation of insurers. It is just
a question of what form the regulation will take.
- The AIG crisis was an anomaly for the industry. Normally an insurer
gets into financial difficulty due to inadequate pricing and reserving not
because of its investment portfolio. Generally, P&C insurers have a conservative
investment philosophy (more than two-thirds of the industry's investment
portfolio is in bonds).
- It is crucial for underwriters to generate underwriting profits for
insurers to continue to be successful. Investment income continues to lag
and cannot be relied on to wipe out poor underwriting results.
Mr. Hartwig also reviewed some of the trends that will specifically impact
workers compensation in the future.
- Obesity—Statistics were offered indicating
that obese workers are twice as likely to file a workers compensation claim
as workers who are at a healthy weight. Additionally, the costs associated
with the claim of an obese worker are significantly higher than those of
a healthy weight peer.
- Aging Workforce—Not surprisingly,
as workers age, their lost time due to illness and injury increases as does
the fatality rate for work related injuries. The fatality rate for workers
65 and above is twice the rate from workers in the 55-64 age group.
- Distracted Driving/Equipment Operation—Highway
incidents remain the leading cause of occupational death even in the economic
recession. Impacting this statistic is the element of individuals driving
while distracted. This factor cuts across age groups with more than 50 percent
of all drivers between the ages of 16-61 being distracted while driving.
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