Whither Work Comp?

Hopefully it isn’t “wither”…

There’s been a good deal of reporting on trends in work comp premiums and coverage of late, with a good piece in WorkCompWire on Marsh’s market survey describing a softening market for many employers.  The WCW article comes on the heels of one in Insurance Journal announcing the “good news” that the P&C industry returned an underwriting profit for the first time in four years.

It’s a bit disturbing that the industry had to rely on investment income to make a profit for three of the last four years, nonetheless the news from AM Best that net income increased 60 percent to $63 billion in 2013 is encouraging news indeed.

WC is a relatively small part of the P&C industry, typically about 11 percent of total premium.  Here are a few quick takeaways.

• WC premiums increased 9.7 percent in 2013.
• Despite those higher premiums, AM Best estimated the industry was under-reserved by about $28 billion in 2012.  
• The 2012 combined ratio was 110.3, a seven-point decrease from 2011.
• Frequency declined faster than claims severity increased.
• Rates are up in several states, including California and Washington.
• There’s much concern about the potential non-renewal of the federal terrorism risk insurance program; if it doesn’t happen rates will likely increase but by how much is unclear.

So, what does this mean?

When profits climb, the market typically starts to soften as capital comes in to work comp, seeking to take advantage of the financial returns. Carriers get more competitive, seeking to add share, and there are more carriers bidding on employer business.

I’d expect this will happen this time, and we’ll see prices level out this year in most states.  This may not be readily apparent as the rates insurance companies file with regulators may not change much, but discount arrangements may well increase.