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Workers’ comp profitability, Part 3

We’ve seen that work comp’s “profitability” isn’t very good, whether measured (inappropriately) as operating gain or (appropriately) as return on net worth/return on equity (ROE).

Today we’ll dig deeper into the data; below is a chart provided courtesy of CWCI, it is NAIC’s 2004-2013 Profitability Report, comparing average rates of return on net worth among California and US WC, property & casualty (P&C) insurers and all industries.

2004 2005 2006 2007 2008 2009  2010 2011 2012 2013 04-13Avg
Calif WC 12.6% 14.2% 16.4% 12.1% 7.0% 4.6% 5.2% 7.4% 3.9% 3.0% 8.6%
Calif All Lines 14.8% 14.5% 17.1% 11.9% 6.0% 9.4% 9.7% 8.4% 7.4% 7.6% 10.7%
US WC 10.1% 9.6% 10.0% 9.0% 5.1% 4.2% 3.9% 6.2% 5.9% 7.2% 7.1%
US All Lines 10.0% 5.3% 14.4% 12.5% 2.4% 6.3% 8.0% 4.9% 5.8% 9.0% 7.9%
NAIC P&C 8.0% 8.3% 12.2% 9.7% 2.2% 5.7% 6.0% 3.4% 5.2% 8.0% 6.9%
Fortune All Ind 13.9% 14.9% 15.4% 15.2% 13.1% 10.5% 12.7% 14.3% 13.4% 16.6% 14.0%

First up, look at the last row, Fortune’s All Industry average is higher than the US WC results every year for the last decade.

Over the last decade, WC’s returns have been just half the All Industry average.

Next, kindly allow me to direct your attention to the bolded red numbers – California WC insurers’ return on net worth for 2013 and the national average for the same year.  Fellow WC geeks will recall 2013 was identified by ProPubica/NPR as WC insurers’ “most profitable year in over a decade, bringing in a hefty 18 percent return.”

Oh were it only so.

(We dissected PP/NPR’s interpretation of profitability yesterday)

PP/NPR’s series of “reports” on workers’ comp allege that this “hefty” return is due in large part to reductions in benefits for workers pushed by employers and insurers and “reforms” that have taken away workers’ ability to choose their doctors – among other changes.  The reporters specifically cited big problems in California, where insurers’ doctors “deny” care without seeing the patient, where benefits have been slashed and workers made to suffer due to ill-conceived “reforms”.

This is a classic example of writers looking for “facts” that support their pre-conceived bias.  NAIC’s data shows just how wrong reporters Grabell and Berkes are; if the “reforms” in California were so one-sided, so employee-unfriendly, designed to benefit insurers at the expense of injured workers, those reforms have clearly NOT delivered the intended financial results.

By way of reference, historically the target ROE for US companies is in the 12-15 percent range, making the US WC insurance industry’s 7.1% return over the last decade look shabby indeed.

Remind me again why anyone would want to be a workers comp insurer???



Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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