Here’s the non-substantive view of the conference.
Very well done. Lots – and I mean lots – of good data and information about trends, costs, cost drivers, potential impact of political and economic developments, broken up with entertaining and thought-provoking presentation on global trends.
Very good speakers with very deep knowledge on their topics. As an example, I learned a lot about the use of Medicare RBRVS in workers comp reimbursement – a topic of critical importance in comp that I thought I knew pretty well.
The dinner last night was not the typical formal sit-down but a casual outside affair with various Italian delicacies on tables surrounding stand-up and sit-down dining tables. This allowed for lots of mingling, discussion, and was a lot of fun to boot.
Two quibbles. In the Medicare presentation yesterday there was no discussion about the potential impact of the pending changes to Medicare physician reimbursement fees. This is a big issue as it will dramatically impact workers comp medical expense, likely in several ways.
One of the morning presenters yesterday, Robert Hartwig of III, allowed (what I perceived to be) a political bias to intrude on an otherwise excellent presentation. Hartwig talked about ‘wealth redistribution’ at some length, and even made the statement that we might see workers comp used as a mechanism for ‘wealth redistribution’. His slides also included a reference to the pending socialization of health care. As I’ve noted repeatedly, that is not what is proposed in Washington by the Administration nor is it consistent with the proposals that have any chance of passage.
These memes – wealth redistribution and socialized medicine – are not helpful nor are they accurate.
But these were minor compared to the solid substance throughout the day.

Dennis Mealy, Chief Actuary at NCCI, got into the details with his State of the Line address at NCCI’s annual conference. We’ll focus on workers comp, but it’s important to remember comp is a part of the overall property and casualty industry .
The P&C industry saw a ten point jump in the net combined ratio from 2007 to 2008, with NCCI predicting a 105% 2008 combined ratio.
That’s big news. But as bad as that is, there may well be more bad before things turn around – historically the PC market does not turn around until the combined ratio hits 116%. And, it is still slightly lower than the average ratio over the last 22 years, which was 106.1%. So we may well have more bad news before the sun comes out.
So, how’s comp doing?
Well, as noted in a post earlier today, for the fourth year in a row, work comp premium declined to $39 billion after three consecutive annual declines. From 2005, premiums have dropped almost $8.5 billion – with a big chunk of that decline in California and Florida.
The combined ratio stayed static at 101 after a stellar 93 in 2006. After accounting for investment results, the industry returned a pre-tax operating gain of nine percent in 2008 (predicted) – a solid result to be sure, although a significan drop from 2007 (12%) and 2006 (17%). And, it is still higher than the average return of 6.5% (from 1990 to 2007).
There’s more data that indicates we may still be a ways from the bottom of the soft market. Reserve deficiencies are still relatively low, the accident year loss ratio remains historically low (although my personal opinion is 2008 and 2009 medical costs will come in significantly higher than most industry folks expect. The industry’s predictive accuracy is pretty poor – private carriers projected the AY loss ratio would be 84 in 1999 and 83 in 2000; when the final numbers came in, the rates were 106 and 102 respectively. that’s rather a large miss) See the 2009 SOL report on their website – particularly slides 20 and 22.
Medical costs
Mr Mealy stated that medical costs, while not solved, appear to be moderating. Mealy mentioned that further development (looking back at past predictions after collecting more data) of projected medical costs have indicated medical inflation rates are moderating. He backed up his assertion (perhaps assertion is too strong a term; opinion might be more accurate) by noting that medical costs as a percentage of claims costs look to have dropped from 59% to 58%. Mealy noted this is by no means proof that medical costs are under control, and he does expect medical to reach 60% of costs.
In a follow up discussion with Mr Mealy, we discussed this issue in more detail. The net is although some payers (specifically HSA’s payer clients) are seeing significant increases in medical costs, driven in large part by facility expense, Mr Mealy’s numbers (which include about half of the nation’s workers comp dollars) don’t indicate medical inflation is trending up.
I’m struggling with this, as it goes against I’m seeing. Then again, I tend to work with payers who are working hard to manage medical costs, so my world view may be skewed.
What are you seeing? (Anonymous responses welcomed)

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.

I’m covering the Annual Issues Symposium at the NCCI Conference in Orlando…
The agenda looks pretty strong, and attendance is solid as well – at 98% of 2008 levels (a big contrast to the RIMS show last month).
NCCI released their State of the Workers’ Comp Line report this morning (available at their website www.ncci.com. Highlights include:
– Frequency declined four points in 2008, evidence that the recession is impacting work comp claims
– As further proof of the continued existence of the soft market, comp premiums declined by 12% last year to $39 billion.
– The accident year combined ratio (claims plus admin expenses) increased to 100%
in 2008, up four points from the prior year.
The agenda includes a discussion of the impact of health reform – and Medicare – on workers comp. Hallelujah. It is long past time for the comp industry to look up and out, to realize we are the flea on the tail of the dog, and that dog is moving in new and different directions, and moving fast.
More to come…

Bill review vendor Stratacare announced the closing of their financing deal this morning. An investment group led by long-term industry veteran Paul Glover now owns a majority stake in the company; SV Life Sciences and Beecken Petty O’Keefe are the private equity firms behind the deal.
Sources indicate the deal is for a majority stake, but significant equity has been retained by the original owners.
Stratacare’s bill review customers tend to be mid-tier and smaller payers; the company’s application has strong auto-adjudication capabilities and was one of the first to integrate the ODG treatment guidelines, essential to processing medical bills in Texas. Most clients utilize their hosted services, although a few have loaded the Stratacare application on their own hardware.
Bill review companies have long been at the mercy of big network vendors who could, and have, altered the terms of their network rental arrangements at will. Stratacare and giant Coventry battled over price increases last year with Stratacare eventually paying significantly higher access fees.
Stratacare will be the foundation of a significantly expanded work comp managed care firm. Expect Stratacare, under new chairman Glover, to rapidly expand into the network business; network rental fees are often a major contributor to bill review company profits and represent a significant growth opportunity for the company. Sources indicate Stratacare is evaluating several initial market opportunities with initial focus likely on Texas, where the larger networks are having challenges meeting payers’ needs.
More details to follow: I have a query into Stratacare.
For now, off to the NCCI annual conference…