National Council on Compensation Insurance (NCCI) President and CEO Steve
J. Klingel opened the symposium by providing an overview of the factors conspiring
to create a "precarious" outlook for the workers compensation insurance market.
Issues highlighted included the effect of the recession on workers compensation
results, how the economic recovery may impact the line, and the role that may
be played in the future by federal initiatives like the recently enacted healthcare
reform bill and the potential involvement in insurance regulation.
NCCI Chief Actuary Dennis Mealy, FCAS, MAAA, delivered a comprehensive review
of current workers compensation results in his presentation on the
"State of the Line." He began by providing 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 net written
premium continues its freefall dropping an additional 23 percent over the past
2 years. Additionally, the preliminary combined calendar year ratio (private
insurers) for 2009 is estimated to be 110 percent, which is the highest it has
been since 2003.
The outlook for the line is further exacerbated by the continued upward tick
of both indemnity and medical severity. The one major bright spot is that lost
time claim frequency continues its decline dropping another 4 percent from 2008
to 2009. Ultimately, the deterioration of the line results coupled with the
ongoing low rate of return on insurer investments and the uncertainties surrounding
the impact of healthcare reform poise the workers compensation marketplace on
the brink of hardening.
Insurance Industry Forecast
Following Mr. Mealy, Insurance Information Institute (III) President
and Economist Robert Hartwig offered a cautiously optimistic outlook for the
insurance industry in his presentation,
"Insurance in the Obama Era: The Road Ahead in the Post Crisis World." In
his opinion, the economic recovery is self-sustaining and there will be no double
dip recession. He believes that the property and casualty industry will begin
to see growth in 2011, the first time since 2006. This is due in part to the
industry's recovery of more than 100 percent of the capital that it lost in
the financial crisis.
In addition to Dr. Hartwig's presentation, several speakers focused on topical
issues that will influence the future of the insurance industry. IBM Global
Insurance Industry General Manager Mark W. Lewis provided a vision of what awaits
in the business environment and the forces that will shape it in
"New Technologies for a Smarter Planet."
"The Future of Healthcare Legislation" was reviewed by Scott
Harrington, Ph.D., Alan B. Miller Professor, Health Care Management and
Insurance and Risk Management, Wharton School, University of Pennsylvania.
In his presentation Dr. Harrington examined the problems with the delivery
system that led to the reform initiative, the significant features of the
reform legislation, the conflict in the liberal versus conservative viewpoint on the reforms, and how the 2010
midterm elections may shape the future of the legislation.
President and Chief Economist Steven A. Wood, Ph.D., Insight Economics, LLC,
"Mad, Bad, and Dangerous—Can You Handle the New Economy?" Dr. Wood's presentation
explored the positive drivers of the economic recovery (highly flexible labor
market, fluid and deep financial markets, and large scale entrepreneurship),
the negative drivers that impact the economy (fading of stimulus from federal
package, and higher tax rates in the offing that are being driven by the gaping
governmental deficits at the state and local level), and the economic elements
that are exasperating (healthcare costs cannot be maintained, the triumvirate
of U.S. governmental social programs are "actuarially bankrupt," and financial
organizations still rely too heavily on borrowing). Based on his findings, Dr.
Wood predicts that economic growth will be a little higher in 2010 but that
another recession could loom in 2016/2017.
Workers Compensation Regulatory/Legislative Environment
NCCI Senior Division Executive—State Relations Peter Burton and NCCI Practice
Leader and Senior Actuary Jeff Eddinger provided an in depth review of regulatory
"Regional Trends." The pair first offered an overview of countrywide developments.
They noted that this year there appears to be more state initiatives aimed at
addressing the misclassification of employees. They also observed that the economy
was a big factor in the type of legislation proposed in the various state legislatures.
The copresenters also supplied a state-specific review (grouped by region) of
the current rate changes and legislative initiatives in the jurisdictions that
NCCI serves as the statistical agent.
Workers Compensation Research Topics
Again this year, the symposium provided a forum for the presentation of studies
related to key workers compensation issues. Executive Director of the Workers
Compensation Research Institute (WCRI) Richard A. Victor, JD, Ph.D., delivered
a presentation entitled "Strategic Choices in the Design of the Workers Compensation
Resolution System." Since a recession causes an organization to reduce unnecessary
costs, Dr. Victor suggested that a starting point for an organization might
be in looking workers compensation dispute costs. On average, a dispute adds
an additional $2,000 to a claim.
States with dispute claim costs significantly above the norm are California,
Florida, Louisiana, and Pennsylvania, while Indiana, Texas, and Wisconsin fall
appreciably below the norm. Because the dispute resolution system is different
in every jurisdiction, much of the cost is driven by the complexity of that
system. But regardless of the system, Dr. Victor concluded that the best way
to limit disputed claims is to engage in timely, clear communication with the
claimant advising how the claim process with work and what the claimant should
expect from the process.
Additionally, MAAA Practice Leader and NCCI Senior Actuary NCCI Barry Lipton,
FCAS, supplied updates on three ongoing studies that NCCI has been conducting:
" Workers Compensation Claim Frequency—2010 Update," " Workers Compensation Temporary Total Indemnity Benefit Duration—2010 Update,"
and "Prescription Drug Study—2010 Update," while NCCI Chief Economist and Practice Leader
Harry Shuford presented his findings on "Identifying the Factors Driving Indemnity Severity."