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Workers Compensation Issues

NCCI Annual Issues Symposium—2019

Christine Fuge | May 17, 2019

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This year's meeting provided insightful information related to workers compensation and its future course. Useful material pertaining to trends and issues that affect the entire insurance industry was also presented.

Presentations from the 2019 National Council on Compensation Insurance (NCCI) Annual Issues Symposium can be found on the organization's website.

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NCCI President and CEO Bill Donnell, Chartered Property Casualty Underwriter (CPCU), began the meeting by offering his opening remarks. He presented an overview of the workers compensation landscape and focused on three areas: market dynamics, the changing workforce, and the legislative environment. Mr. Donnell discussed the unprecedented 7-year period of positive results that the workers compensation line has posted and the forecast for its future. He believes that technology has paid a big role in smoothing the underwriting cycles that the line has gone through by providing quicker access to data and analytics, allowing underwriters to make quicker adjustments to their underwriting.

As to the changing workforce, Mr. Donnell examined the findings of an April 2019 NCCI study by Patrick Coate, Changing Workforce Demographics and Workplace Injury. One of the key findings of the study is that the aging workforce has very little impact on declining loss frequency. He then considered the significant impact that the legislative ecosystem has on workers compensation and took a quick look at some of the hot trends like marijuana, marketplace vendors, and opioids. He concluded his presentation by advising that it is important for the workers compensation system to deliver stability to its stakeholders through trust and transparency.

State of the Line

The "State of the Line" was delivered by NCCI Chief Actuary Kathy Antonello, Fellow of the Casualty Actuarial Society (FCAS), Fellow of the Society of Actuaries, Member of American Academy of Actuaries (MAAA). Ms. Antonello opened her presentation by providing an overview of the property and casualty (P&C) insurance results.

In 2018, the industry again continued to evidence strong premium growth across all lines of insurance with a 10.6 percent increase from 2017. The net combined ratio for the P&C industry for 2018 stands at 99, down 5 percentage points from 104 percent in 2017. The reduction in the ratio was driven by improved underwriting results and a decrease in natural catastrophes during 2018, although catastrophic losses over the course of the year were still well above the long-term average of $37 billion.

Turning to the state of the workers compensation line, Ms. Antonello advised that the calendar year net combined ratio for 2018 dropped to 83 from 89.3 for 2017. This is the lowest calendar year net combined ratio since at least the 1930s. Other line statistics to note are that net written premiums ticked up a bit from $45 billion to $48.6 billion and that NCCI residual market premiums for 2018 were down slightly from 2017, as was market share. This continues a 6-year trend of stable premiums and market participation.

In reviewing loss line drivers, Ms. Antonello stated that the decline in lost-time claim frequency continues but at a slower pace, with the 2018 number down just 1 percent from 2017. Average indemnity claim severity along with lost-time claim medical severity saw modest increases in 2018. The average indemnity portion of a claim rose about 3 percent from $23,900 in 2017 to $24,600 in 2018.

NCCI estimates that the average medical portion of a lost-time claim also increased 1 percent from 2017 to 2018. The 2017 claim amount is $28,700, and the 2018 figure is $28,900. In looking at the role that prescriptive drugs play as a medical cost driver, Ms. Antonello updated information on a positive trend related to opioid use. In 2013, 55 percent of injured workers with prescriptions were dispensed opioids. By 2018, this number had dropped to 40 percent.

Additional information related to the presentation is available in the 2019 State of the Line Guide. This document does a deeper dive into each slide in the talk, highlighting the significant aspects of each.

The Economics of Workers Compensation

In "The Economics of Workers Compensation," Robert P. Hartwig, doctor of philosophy, CPCU, clinical associate professor of finance at the Darla Moore School of Business at the University of South Carolina, reviewed various economic drivers that impact workers compensation. He began by comparing the current state of the US economy with the 2009 US economy that was just about at the end of the Great Recession. Dr. Hartwig's conclusion was that workers compensation was the line of insurance most adversely impacted by the Great Recession. In discussing the current economic climate, he examined both positive and negative labor trends that drive workers compensation and the overall economy.

Dr. Hartwig also addressed a very current issue, the potential impact of the tariffs imposed via the Chinese trade war on the economy and workers compensation. He advised that the escalating trade war would clearly have a negative effect. Using the scenario of a full-blown trade war (25 percent US tariff and full Chinese retaliation), the United States would experience an approximate net job loss of 2.235 million jobs after 1–3 years of sustained tariffs. The states expected to experience the greatest job loss are California, Texas, Florida, and New York. He also noted that, under this same scenario, a family of 4 will pay an additional $2,389 each year for goods and services.

Terrorism Risk Insurance Act (TRIA) Renewal—Action and Reaction

Guy Carpenter and Company Vice Chairman David Priebe presented "TRIA Renewal—Action and Reaction." He began with a review of the history of TRIA along with the problematic path the last renewal took through the US Congress. He highlighted the unique exposure that workers compensation faces from terrorism. It is the only line of insurance that is unable to exclude terrorism due to the statutory restrictions placed on it by jurisdictions. He stressed that it is imperative for underwriters to gather underwriting information about employee concentrations and their locations in buildings and utilize this information with modeling software to determine loss potentials. Mr. Priebe also offered his forecast of what to expect from the TRIA renewal. He stated that Congress is anxious to avoid the disruption of 2014 and that increases in deductibles and thresholds are very likely.

Cognitive Collaboration—Data Science

"Cognitive Collaboration—Why Data Science Needs Human-Centered Design" was presented by Jim Guszcza, US chief data scientist, Deloitte Analytics. He examined the artificial intelligence (AI) revolution and its impact on the industry. In looking at the classic man-versus-machine argument, he explained that the inherent flaw in AI is that it approaches programming too logically. Human behavior is not logical. A better approach is a smart design that contemplates human interaction so that a better outcome is achieved.

Mr. Guszcza also advised that it is not enough to build an algorithm. The process must also include steps that involve human elements, including judgment, decisions, and possibly behavior change. He also examined the boom in the growth of wearables to monitor health. Mr. Guszcza opined that wearables are "the facilitators—not the drivers—of health behavior change." The ability to engage the user in the device is far more important than the technology used to power the device.

Workers Compensation versus Group Health

In "Work Comp vs. Group Health—The Price We Pay," Barry Lipton, FCAS, MAAA, practice leader and senior actuary at NCCI, started his talk by reviewing the similarities and differences between workers compensation and group health, including the regulatory framework and cost controls. He then moved on to discuss costs, noting that, for the service years 2013 to 2016, physician services costs were higher for workers compensation than group health. The difference in costs was largely driven by the volume of services, not the price of the services, which were comparable.

Mr. Lipton observed that the cost differentials were smaller among acute injuries (limb sprains, fractures, and blunt trauma) than for complex injuries (spine disorders and injuries, and inguinal hernias). He also mentioned that workers compensation radiology costs have improved significantly in the last decade; much of this is due to a significant number of states utilizing a Medicare-based fee schedule that has held down the costs of metal artifact reduction sequence (MARS) magnetic resonance imaging (MRI) procedures. Mr. Lipton concluded his remarks on this topic by mentioning that, in workers compensation, physical therapy is prescribed significantly more than in group health for both complex and acute injuries.

21st Century Threats to Worker Health

John Howard, doctor of medicine, director, National Institute for Occupational Safety and Health, examined the "21st Century Threats to Worker Health and Safety." He advised that we are in the middle of the fourth Industrial Revolution that is being driven by AI. This brings with it unique opportunities, challenges, and exposures in the workplace. Dr. Howard presented an in-depth review of the various technologies found in the workplace that utilize AI, including robots (traditional industrial, collaborative, service, and social) and sensors (placeables, wearables, and implantables). He assessed the potential and concerns of each technology. Dr. Howard then examined the issues surrounding advanced manufacturing and the technologies being used in its processes, like 3-D printing, nanotechnology, and additive manufacturing.

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