Work Comp 2004 financial results
Workers compensation insurance results are in for 2004, and the numbers look strong. The overall operating ratio improved to 93.7, up from 98.4 in 2003 and 100.3 in 2003.
(The operating ratio is simply total expenses/(total premium plus investment income))
The positive results, reported by John Burton's Workers Comp Resources, were driven by a significant improvement in overall claims expense, with the claims ratio at 68.4, a ten-plus point improvement over the prior year. The good news on the claims side was counterbalanced by a ten-point drop in investment income performance from 2000 (20.9% return on investments) to 2004 (11.2%).
The net - claims costs are decreasing, investment results are tanking…but these results are driven in large part by reserving practices. Given the industry's demonstrated inability to accurately predict future claims costs (a third of claims dollars are paid out more than three years after the claim is incurred), the recent drop in insurance rates, and higher medical expenses in workers comp than through other insurance vehicles, expect these results to change considerably next year.
What does this mean for you?
Enjoy it while it lasts, because it won't last long.