Why Workers’ Comp Carriers Must Not Rest
The National Council on Compensation Insurance (NCCI) recently released its annual review of the U.S. workers’ compensation industry. While the numbers suggest that the market is in reasonable shape, according to NCCI president & CEO Bill Donnell, there are challenges ahead.
The State of the Line report, which provides a detailed review of trends and cost drivers, was presented by Kathy Antonello, chief actuary for the NCCI, at the 2017 Annual Issues Symposium.
While the 2016 data is preliminary, Ms. Antonello’s presentation gave a good indication of how the Workers’ Comp (WC) sector is faring. Net written premium for private carriers increased to $40.1 billion in 2016, compared with $39.7 billion and the total WC market net written premium volume was unchanged from 2015 at $45.5 billion – that’s still below the pre-recession peak of $47.8 billion in 2005.
The 2016 calendar year combined ratio of 94% for private carriers, remained the same as 2015. To put that in perspective, consecutive combined ratios have not been at this level in 30 years. The loss ratio is 53% while only a 1-point decline against 2015, it is the lowest since 1995.
The WC investment gain on insurance transactions was 12% for 2016, a slight increase over the 10.9% from 2015, but still below the 20-year average of 13.7%.
The 2016 loss and LAE reserve deficiency for the sector is estimated at $5 billion, which is $2 billion less than last year and amounts to approximately 4% of carried reserves.
WC lost-time claim frequency was -4% for 2016, compared with the average annual change from 1995 to 2015 of -3.6%. The 2016 average indemnity cost per lost-time claim rose to $23,900, which is a 3% increase over 2015. The average medical cost per lost-time claim increased by 5% to $29,100 in 2016. (Starting this year, NCCI now uses the Personal Health Care Chain-Weighted Price Index.)
Of course, these stats only tell part of the story. NCCI’s Bill Donnell reminded everyone of the cyclical nature of the WC business along with the need for WC to stay relevant throughout the constant change in its environment.
Citing challenges, such as new technologies, the evolving workplace and workforce, and other industry disruptors, Mr. Donnell stressed that the WC industry needs to adapt to the different and changing needs of employers and employees. If it doesn’t, he warned, the sector could potentially suffer the fate of other industries that have fallen by the wayside.
For a fuller summary of the NCCI Annual Issues Symposium, you can read our recap publication.