Gustav and workers comp
There's an obvious connection between hurricanes and work comp - people get hurt while working, injuries that are covered by workers compensation. But there's a less visible, but nonetheless significant link between big weather events and comp.
Capital is mobile; it moves quickly, shifting to find the best opportunity with the least risk. Right now, it's a safe bet that investors are looking for better returns to offset their fears about increased risks from what looks to be a pretty active hurricane season. And that desire for better returns may well mean an increase in reinsurance, as well as primary insurance, rates.
The work comp market has been flat recently, with claims costs edging up slightly, premium rates declining in many states, and frequency dropping yet again. Employers have seen work comp costs decline in Alabama, Kentucky, Tennessee, Florida, California, Pennsylvania and New York, not to mention many other states. The National Academy of Social Insurance reports that nationally, claim costs actually dropped in 2006, due primarily to the dramatic reductions in California.
That was 2006. As I've reported previously, there are clear indications that medical costs are on the way up again, led by increasing hospital expenses. WorkComp Central reported (sub req) today that NCCI is warning about medical cost inflation in Alabama, where medical now accounts for almost three-quarters of total claim costs.
The combination of higher medical expenses and a (potentially) tighter market for reinsurance may well make for higher costs in 2009. And even if the hurricanes blow themselves all out to sea, the soft market can't go on much longer. Really.
Gustav's weakening and change in direction resulted in damage that at least at this point looks to be significantly less than expected. By way of comparison, predictions are that the bill for Gustav will be about an eighth of that for Katrina's.
What does this mean for you?
The work comp industry dodged a bullet - but more are on the way.