After this morning’s sobering announcement of a 115 combined ratio for work comp, things didn’t get much more rosy in Bob Hartwig’s presentation on the “post-crisis world”.
Since 2005, work comp net written premiums have dropped from about $50 billion to $35, a drop of about 30%. That’s a massive loss, and that’s why everyone, and every business even remotely connected to the work comp insurance has been hammered over the last few years.
It’s got to get better, right?
right?
For that we turn to Bob Hartwig,who covered everything from Bid Laden to jobs to
Hartwig is always entertaining, enthusiastic, and engaging – hard to do when you’re talking insurance. He started out discussing the Terrorism Risk Insurance Program, and specifically the question “now that Bin Laden is dead, do we still need it?”
Absolutely, says Hartwig, who cited the $40 billion cost of 9/11 and noted that any future disaster would almost by definition result in high claims – and high costs – for workers injured or killed in an attack.
Moving on to the Japanese disaster, total costs are estimated to fall somewhere in the $12 to $45 billion level, with most coming in around $25-30 billion.
With the insured costs of the Japanese catastrophe and domestic, primarily weather-related disasters well up above $40 billion, what’s the implication for work comp insurers? Most of the impact will be on the reinsurance markets, which, while they won’t directly impact comp, certainly will as comp insurers get renewals from their reinsurers. Hartwig noted that the impact – over the near term, will be minimal to nonexistent.
The job front is looking up – as there have been two million new jobs created since January 2011, with significantly stronger growth over the last two months adding almost a half-million jobs in February and March alone. This – of course – is great news for work comp as it adds billions in payroll to what – as we noted earlier today – has been a work comp premium base suffering from lower revenues.
The impact of small business and construction were discussed in detail – listening to Hartwig is somewhat analogous to drinking from the proverbial firehose – but the net is there aren’t enough small businesses starting (as of March 2011), too many went bankrupt over the last two years, and all forms of construction haven’t grown enough – or quickly enough – to add a lot of premium dollars over the near term. When construction and small business start-ups get going, that will be good news indeed for insurers.
Reserve releases have been helping to keep the overall P&C insurance industry combined ratio at a decent level (a bit above 100), but when (not IF) these releases stop, the combined ratio will bump up.
So, what does this all mean?
Hartwig appears to believe the work comp market will remain level, with the positive impact of increasing employment balanced by lots of available capital.
My sense is the impact of rising health care costs will be more significant than most think, and will overcome some of the positive factors noted by Hartwig.
We’ll see.
May
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