Workers’ comp – 2016 State of the Line

NCCI Chief Actuary Kathy Antonello’s State of the Line presentation – is the hot ticket at AIS. (Her presentation will be available here right after her presentation ends; the password is Transforming .)

Antonello’s use of new imaging and automation to present data was compelling and highly informative, really helping this non-actuary understand the import of the data and findings, and potential impact going forward.

Key intro points – Medical severity changes remain moderate, but drug costs are increasing at a troubling rate.  Definitions of “employee” are evolving as is the “workplace.

Key data points

  • Work comp net written premium for private carriers up 2.9% to almost $40 billion in 2015. State funds accounted for $5.8 billion in premiums, for a total of $45.5 billion – up from 44.2.
  • WC combined ratio improved to 94, a six-point drop from 2014 and the second best combined ratio since 1990
  • Most recent P&C industry cycle was a seven-year one, shorter than previous cycles
  • Unsurprisingly, net investment income decreased slightly across all P&C lines.

Private carrier details

  • direct written premium decreased in 9 states, with the biggest drop in OK due to reforms.
  • CA and NY had larger than average increases with CO DC and OH jumping by double digits.

Work Comp Drivers

  • Payroll is up 23% since 2010 – a pretty nice increase.
  • Construction employment has led the way, up 17%
  • Frequency continues its long term structural decline, down another 3 points – just below the long-term average of 3.6%
  • Medical is 58% of total benefits
  • Medical cost per LT claim DROPPED 1% in 2015 – more on this later…
  • Indemnity expense up 1 point from 2015 on a per-claim basis.
  • Loss ratio drop of 6 points is by far the most important contributor to the improved combined.
  • Loss adjustment expense (LAE) ratio increased somewhat, due to the improvement in losses.
  • Five-year investment gains dropped to 13 percent, down below the long-term average of 14.1 percent.
  • Reserve deficiency down to $7 billion

The operating gain jumped to 18 percent, a historic high – and far above the long-term industry average of 5.8%

Not surprisingly, all this good financial data is leading to premium price reductions.  Rates are decreasing, with 57% of agents seeing a decrease in rates at renewal in Q4 2015.

Most surprising is the data on medical severity – it is actually tracking BELOW medical CPI increases, a major change from prior years.

This despite a 6 point increase in drug costs, a finding that – argh! – will be discussed in detail in the research discussion which is scheduled at the same time as my panel on regulatory issues…

More – lots more – to come on the medical cost finding.  Spoiler alert – it looks like the reforms in California are working to cut unnecessary medical expenses…with Cali accounting for about a fifth of total work comp premium, that’s a big driver.

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