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May
7

NCCI – Impact of regulatory changes and the recession on work comp

NCCI President Steve Klingel led off the NCCI Annual Issues Symposium (AIS) with a discussion of reform.
Regulation
Notably, despite the sweeping wins by Democrats at the state level, the actual number of reform bills likely to become law decreased.
From the Federal perspective, one of the more significant potential issues is the advocacy by CA Rep Joe Baca (D) of a National Commission on Workers Compensation to evaluate state WC laws and regulations to determine the equity and fairness of the states’ comp systems. There’s not much support on the Hill for Baca’s initiative – but given the pace and variety of issues under consideration in DC it is possible – if only slightly – that the bill gets some attention (it also doesn’t cost anything, which is kind of rare these days).
The overall message? We are very much in a wait-and-see mode regarding changes in regulation. oversight, and potential impact of reform and Medicare changes.
Recession
Payroll (which has a dramatic impact on work comp premiums) looks to be somewhat flat; if unemployment hits double digits, expect payroll to decline for the first time in decades. Watch this closely…
If employers continue to cut wages across the board, premium will decrease – but the underlying risks, and the cost of those risks, will not. There appears to be anecdotal evidence of these across the board wage cuts; insurers would do well to monitor this carefully.
The decline in frequency is logical during a recession – in fact in six out of seven recessions frequency declined (note I’ve posted on this several times in the past). However this recession is deeper, broader, and nastier than almost any others on record, and therefore it’s harder to predict what the impact will be. There’s no doubt – in my mind – that the recession has prolonged an already-too-long soft market. Despite rising medical costs and increases in overall lost time claim costs, comp premium rates remain historically low.
As some economist long ago said, if something can’t go on forever, it won’t. The obvious question is the timing of ‘forever’. For many comp writers, ‘forever’ may come too late. Their ongoing decisions to write comp at low rates despite upward pressure from medical expense may well result in a shake-out similar to the one we old folks saw after the end of the soft market of the late nineties.
There will be much more detail on these issues in later sessions – stay tuned.


Joe Paduda is the principal of Health Strategy Associates

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