‘Balance’ for Workers’ Comp

The workers’ compensation market is returning to a state of “balance.”

That’s according to this year’s state of the industry address at NCCI’s annual symposium where analysts reported that the workers’ compensation combined ratio rang in at 101 in 2013, a seven-point decrease from 2012 and a 14-point decline since 2011.

“We are finally starting to see an industry in balance with these results,” said NCCI President and CEO Steve Klingel. “Today, industry costs are largely contained, claims frequency continues to decline, and the system in most states is operating efficiently. In short, the market is operating as it should on behalf of most stakeholders.”

Overall, the workers’ comp line showed a number of positive results in 2013, said Kathy Antonello, NCCI chief actuary. Premiums grew for the third consecutive year, and at the same time, the combined ratio fell by seven points.

While the workers’ comp calendar year combined ratio for private carriers was 101 for 2013, the accident year results also showed notable improvement in 2013, falling eight points to a combined ratio of 99, NCCI reported.

In other good news, lost-time claim frequency maintained a path of decline in 2013, down 2 percent, on average, in NCCI states. The 2 percent decline is within NCCI’s long-term annual estimate of a of 2-4 percent decline per year.

For the fourth consecutive year, the ratio of investment gains on insurance transactions to premium remained near the long-term average of 14 percent.This investment gain outcome, combined with the underwriting results, produced a workers’ compensation pretax operating gain of 14 percent for 2013. This represents a significant increase over 2012, and the industry’s first double-digit return since 2007.

The overall reserve position for private carriers improved in 2013, following five consecutive years of deterioration. NCCI estimates the year-end 2013 reserve position to be an $11 billion deficiency for private carriers.

In states where NCCI is the rating organization, the average indemnity cost per lost-time claim increased by a modest 2 percent in 2013, following increases of about 1 percent in both 2011 and 2012. The average medical cost per lost-time claim increased by 3 percent in 2013.

The workers’ comp residual market experienced a second straight year of significant growth in 2013. Premiums grew by more than 30 percent, and the average market share in the residual market increased from 7 percent to 8 percent.

While there was good news out of 2013, the industry faces challenges ahead, including slow growth in employment, unsustainable investment gains, the uncertain impact of healthcare reform and the pending expiration of the Terrorism Risk Insurance Act.