Expert Commentary

Workers Compensation Issues and Trends 2009—The NCCI Perspective

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.

Workers Compensation Issues
May 2009

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.

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