Mixed Messages in Midwest Workers’ Compensation

Workers’ compensation insurance carriers saw their premium levels rise in the United States in 2011, but they continued to struggle with combined ratios that are too high.

Workers’ compensation insurance premium rose nationally in 2011 to $32.2 billion versus $29.9 billion in 2010, an increase of 7.9 percent, according the recent State of the Line workers’ compensation market analysis released by Boca Raton, Fla.-based NCCI.

Calendar year combined ratio for the workers’ compensation line as a whole remains high, the NCCI reported.

Preliminary figures for private carriers 2011 show the combined ratio nationally at 115, unchanged from that of 2010. That number is up significantly from the decade low of 96, experienced in 2006, but down from a high of 122 that private carriers experienced in 2001, according to the analysis.

NCCI did acknowledge other positive indicators for the line, in addition to premium growth. Growth in severity has been moderate, NCCI said, and the loss cost impact of frequency and severity is minimal overall. Plus, the industry’s capital position has improved.

Still, NCCI pointed out that the workers’ compensation line has had the highest combined ratio of all the major commercial lines of insurance for three years in a row.

“Workers’ compensation, because of its direct connection to employment and the labor markets, has been the property/casualty line most significantly impacted by the continued difficult economic environment,” said NCCI Chief Actuary Dennis Mealy in an announcement. “Combined ratios remain at unsustainably high levels, and investment returns are not sufficiently high to generate operating returns near the cost of capital.”

Ted Wagner, director of underwriting for Michigan-based Amerisure, sees two issues as having a significant impact on the workers’ compensation line both now and going forward.

“Rising medical inflation, which is increasing rapidly, higher than the general inflation in the economy. And low interest rates, which lower investment income for insurance companies. Both of those are significant challenges for the workers’ compensation market,” Wagner told Insurance Journal.

Workers’ comp accounts for around 50 percent of Amerisure’s book of business.