I thought summer was supposed to be slow…

Sorry for lack of posts last two weeks – just slammed with client work.

here’s what I should have been posting on.

Economy drives employment drives workers comp

The economy boomed in the last quarter, with growth around 4 percent, a number we haven’t seen for four years.

Chart from Statista.

That’s the headline; the real story is less positive. Growth was partially driven by:

• the Chinese buying shiploads of soybeans ahead of the tariffs going into effect – they’ve already cancelled orders for this quarter and next year.
• Manufacturing orders spiked ahead of the imposition of retaliatory tariffs from the EU
• Higher government spending
• Higher consumer spending

Here’s hoping things continue without overheating; forecasts aren’t so positive.

Implications – Lots of jobs open means higher wages and incentives for employers to keep workers on the job and get them back to work ASAP.

For those who just can’t get enough of the tariff issue – here’s the Harvard Business Review’s historical perspective.  Yes, I am a nerd.

Heat = more work-related illnesses/injuries

Deadly fires in Yosemite and California and Greece and Siberia and Sweden. A heat emergency in Japan. Temps in LA at record levels – even overnight. Scorching temperatures here in upstate New York.

Yes, climate change is happening. Yes, humans are the cause. And yes, it’s going to impact workers.

If the wet-bulb temperature (equivalent to that recorded by a thermometer wrapped in a moist towel) exceeds 35°C [95 degrees Fahrenheit], even a fit, healthy youngster lounging naked in the shade next to a fan could die in six hours.

Shifts in weather patterns are far more significant than overall global warming as they lead to very hot and dry conditions some places, hot and wet others, and exacerbate storm intensity among other effects.

Kudos to NCCI – they’ve been producing some highly relevant, much needed, and very useful research of late. Detailed, thorough, and diverse, and well worth your careful review.

One different angle is their ongoing work to highlight the good done by the  workers comp industry every day. Today’s installment is another example of this; there’s a lot more recognition that work comp is about the patients and employers.

Well done.

Opioids in the Federal workforce

Thanks to the great folks who handle my social media, website, and all that technical stuff I don’t understand at all, we’ve got video of testimony before the House Committee on Education and the Workforce.

 

That’s the quick takeaway from a review of CWCI’s just-published report on drug prescription management in the Golden State. (there’s a lot more to this study than this…)

As cognoscenti (a fancy word for nerds) know, the utilization review (UR) and Independent Medical Review (IMR) processes were intended to help ensure patients got the drugs they needed quickly, were protected from dangerous or potentially unsafe drugs, and prescribers would learn what was likely to fly and what wasn’t.

This last was based on decades of experience in healthcare, observing what happens when evidence-based guidelines protected by utilization review processes to encourage/require compliance are put into place. In most every other instance, providers adapted their care models to meet the standards, and after a flurry of appeals at the outset, things settled down a lot.

But, well, hey, this is workers’ comp…

The first two (better care and patient safety) seem to have worked pretty well, but up till now, it appeared that WC prescribers were militant non-learners as the volume and type of UR/IMR requests just didn’t taper off.

My assessment of CWCI’s report is (equivocation alert) prescribers MAY BE changing their behavior – a wee bit. 

Here’s what’s driving my optimistic take (from CWCI):

I mean, how could one not dance in jubilation, right?

Well, perhaps prescribers have decided to not keep pushing that stone up the hill. Or perhaps it’s just a temporary hiatus.

I’m going to remain optimistic, and you should read the entire report because there’s lots of good info in it.

What does this mean for you?

Less hassle, better care. We hope.

 

Dr Bob Hartwig of the University of South Carolina gave his annual whirlwind tour of all things economic. The net – his talk was an exuberant paean to the US economy – and the impact of that economy on workers comp.

My view –

• the data doesn’t indicate the economy has noticeably strengthened over the last year or so;
• consumer and small business confidence levels are notoriously fickle; and
• there are lots of warning signs out there that merit close attention; warning signs that weren’t adequately addressed in the talk.

While he briefly noted several potential issues with the economy, overall Bob painted a picture of businesses investing, consumers spending, profits abounding, and sunshine and happiness all around.

I’m not so sure.

For example, he cited as one reason for the nation’s positivity this datapoint; GDP growth was north of 3 percent for two quarters last year. Well, that’s true. However…

He chose two quarters where growth was over 3 percent – but in reality annual growth was 2.6% last year.

And 2.3 percent for the first quarter of 2018.

And last year’s 2 quarters paled in comparison to the 3.5 percent growth in 4 out of 5 quarters we saw in 2013-2014.

A 2.6 percent annual increase is solid, but by no means a boom.  Bob did cite the high consumer confidence index, small business confidence, and a variety of other factors as support for his overall very positive outlook.

While people may be “confident”, confidence is a state of mind that can change really quickly…and there are dark clouds on the horizon.

For example – wages remain low; consumer debt levels are at historic highs (26% of earnings); the Federal debt and deficit is going to soar, driving up interest rates; and there’s a real risk of trade wars.

If consumers feel strapped and stop buying, things will get ugly. Given the record levels of consumer debt, I don’t see how the buying surge can keep going unless wages increase and interest rates stay low – which isn’t happening.

Bob briefly noted the issue of wage stagnation, but did not discuss the impact of this – and the fact that this is a chronic problem for consumers and businesses. In fact, the financial gains are not going to workers, but to investors and owners…who are less likely to use their newly-gotten tax gains and profits to buy pickups and groceries and movie tickets.

He talked about job openings, specifically the 6 million job openings today – perhaps those jobs are open because employers aren’t willing to pay enough to get people who have left the workforce back in the job market.

He did address the the long-term unemployed, sort of.  Hartwig stated that the number of folks not looking for work is not going to change due to a number of factors (citing the U-6 unemployment rate, which includes those not actively looking for work – slide 17).

Got to admit this was confusing… the overall labor force participation rate, which has been pretty flat since 2014, was often cited by Obama critics as proof that the “recovery” was no recovery at all.  Now we hear that the unemployment rate – which is the inverse of the labor force participation rate – isn’t likely to change. [I emailed Dr Hartwig Monday asking for clarification; haven’t heard back yet but will update the post if I do]

Well, which one is it – will people return to the workforce or not?

Here’s a detailed discussion of labor force participation rates; note that the rate today is exactly what it was in January 2017 – 62.9%. And here’s why labor force participation is viewed as a better measure than unemployment.  Here too.

Clouds on the horizon

Hartwig did note a few potential issues…

• the possibility of trade wars affecting employment; those industries most at risk – aircraft, electrical equipment, fabricated metals are among the top potential victims,
• infrastructure improvements likely won’t have much of an effect.
• the pending huge increase in the Federal debt  – Bob said that interest rates “may” have to increase.

May???

Not only will interest rates go up (for businesses and the Feds), but a much larger percentage of Federal spending will go to debt service. In fact, we can expect the Fed to increase rates this year.

What does this mean for you?

The data points cited by Dr Hartwig don’t indicate the economy has strengthened appreciably over the last 18 months. Yes, consumer and small business confidence indicators are strong, but they appear to be based not on real economic conditions but on emotion.

Emotions can change fast.

Kudos to NCCI for including an excellent discussion of blockchain in this year’s Annual Issues Symposium.

(Prior posts on blockchain are here.)

This is starting with reinsurance; a good summary is in presenter Paul Meeusen’s summary slide below.

Meeusen and his colleagues and business partners have moved very, very quickly. Many of the bigger names in insurance, reinsurance, and other service entities came together in December 2016 to figure out if and how to work together on blockchain.

Now, less than 18 months later, a company is working to set standards, coordinate communications, and define working processes.

Rather than get into the nits of this, I’ll focus on impact.

Remember – P&C insurance’s administrative expense load is stupid high.

And work comp is perhaps the worst offender; about 30% of premiums go to stuff other than paying claims. That administrative expense is, in the view of blockchain advocates, proof that WC is very inefficient. Therefore there is a significant opportunity to strip out costs while improving data quality, speeding up transactions, and reducing employers’ and taxpayers’ expenses.

The business case for blockchain – which I’m using here as a description of a broader use of technology to replace today’s cumbersome, error-prone, and high-friction administrative system – is so compelling as to render it inevitable.

It also means there are going to be a LOT more opportunities for consumers to insure things that are valuable to them – objects, events, structures, trips, you name it.

What this means for you:

• Many of us who are “frictional cost” are going to lose our jobs.
• Service companies who make their money doing admin work are going to lose their customers.
• And other vendors, especially small ones who can’t afford to adapt to blockchain, are going to find they can’t service their customers.
• But there are great opportunities for creative insurers to find new niches to service customers.

 

That’s the first top takeaway from NCCI’s Annual Issues Symposium.  Over the last 30 years the average pretax operating gain has averaged 5.5%; last year the return was more than four times higher.

 

The big news came from Kathy Antonello, NCCI’s Chief Actuary. (the bullets below are derived from different data, complete presentation is here). Note “NCCI states” does not include several large states; California, New York, Pennsylvania, Ohio, and others.

• Claim frequency dropped precipitously – 6 percent, on top of last year’s 6.2%…over the last 20 years, frequency drops 3.7% per year (for carriers and state funds in NCCI states).  According to Antonello, “barring major unforeseen events, we do not expect this trend to change.” (I may have slightly misquoted her) Private carriers’ work comp premiums declined marginally…adding State Fund premiums still resulted in a marginal decrease.
• WC combined ratio for private carriers improved to 89 – the lowest result in over 50 years.  That is a pretty amazing number.
• Two big states – FL and NY – saw premium increases north of 9% (rates are available for all states)
• Medical inflation for lost time claims increased 4 percent for funds and carriers in NCCI states.

A couple underlying stats reveal much more.

Comp premiums are driven by payroll and losses; payroll jumped 4.4 percent, while loss costs dropped by 4.2%. So, despite more pay to more workers, losses stayed flat.

Put another way, the frequency decline more than offsets increases in employment. So, the total number of claims likely declined significantly.

The result – filed premiums in the vast majority of states decreased last year, so most employers’ costs are decreasing. And, this may continue, as reserves are in very good shape, so insurers won’t have to raise rates in future years to build up reserves for past claims.

Finally, Kathy’s presentation was terrific. Great use of graphics, videos, and slides to communicate some pretty complicated and dense information. Kudos to the folks behind the scenes who developed the data, put together the graphics, and made it all understandable.

I’ll give my take on what this means next week; suffice it to say that this is:

• great news for employers and taxpayers,
• bad news for case management and other claims-centric businesses, and
• going to force insurers to think very carefully about future capital investments.

There is a wealth of information in the presentation, SSDI and work comp, residual markets, BLS v WC claim rates – download it here.