Expert Commentary

NCCI Annual Issues Symposium—2010

The 2010 NCCI Annual Issues Symposium again offered timely and insightful material that covered the spectrum of workers compensation issues, as well as those that face the insurance industry as a whole. Some of the topics addressed included the state of the economy, the impact of the recently enacted healthcare reform legislation from a micro and macro perspective, a status report on efforts in Congress to add additional layers of regulatory oversight for insurers, and assessments of the ongoing viability of both workers compensation and the property and casualty insurance industry.

Workers Compensation Issues
May 2010

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, offered "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 and legislative "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."

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

Like This Article?

IRMI Update

Dive into thought-provoking industry commentary every other week, including links to free articles from industry experts. Discover practical risk management tips, insight on important case law and be the first to receive important news regarding IRMI products and events.

Learn More

PLP White Paper sidebar
Featured Video

Featured Products

The Wrap Up Guide

The Wrap-Up Guide

This "how-to" guide will walk you through everything you need to know about designing, implementing, and administering a wrap-up or controlled insurance program (CIP) for construction projects.
Learn more.


Commercial Liability Insurance

Mistakes made in the design of your liability program can cause serious coverage gaps and significant financial losses. IRMI's best-selling resource can help you quickly identify gaps between your primary commercial general liability and your umbrella/excess policies.  
Learn more.


Social Media

User ID: Subscriber Status:Free