The Commercial Lines Outlier–Workers’ Compensation
In addition to weighing in on opportunities in the E&S/specialty lines market segment where prices have been firming, executives speaking at the September KBW Virtual Insurance Conference offered views on the one standard commercial line that remains an outlier to the current hard market — workers’ compensation.
“There is no headline. There isn’t anything new” to report, Christopher Swift, chair and CEO of The Hartford. “The line continues to perform well,” he said, noting that frequencies declined markedly during COVID but The Hartford remained conservative in its loss cost picks anyway.
Pointing to the carrier’s expertise across small commercial, middle and even large risks with deductibles, which Swift believes gives The Hartford a data advantage, he reported that the company was able to manage a good outcome event during a declining price environment over multiple years.
“It’s still a highly profitable business for us. We have been able to manage to strong ROEs well in excess of our cost of capital. We have able to perform during a robust rate environment and when rate environments were challenged,” he said. “There is no breaking news here.”
Still, Swift did refer twice to a benefit to workers’ comp and other employment-centric business lines — the tailwind of wage inflation.
W.R. Berkley Corp. has been shrinking its book in recent years — and remains cautious.
“From our perspective, it is possible that tempered benign frequency may have glossed over some other challenges around severity,” said Robert Berkley, Jr., president and CEO. ”
We, as organization, have been beating the severity drum for some period of time, [and] we’re concerned that others are not focused on that severity trend. We think it’s going to come back and bite them because they are busy celebrating the short-term benefit of [lower] frequency during COVID,” he said.
Pointing to the impact wage inflation as “the one big wild card” for workers’ comp carriers, he conceded that “if all other [loss cost] assumptions…are spot on, and wage inflation is significantly above what people had anticipated,” that could be a benefit for the workers’ comp insurance industry. “We’ll have to see how wage inflation matches up with other components of the equation for loss costs,” he said.
“That all having been said, from our perspective, the industry, overall is not paying enough attention to severity trend in the workers’ comp line.” In addition, he said, carriers need to keep a potential impact to loss frequency in the back of their minds — the tight labor market.
“It is real challenge for employers to get talent. And as they are stretched on that from a staffing perspective, oftentimes, you get less well trained, less qualified people in roles where, as a result of that lack of training, they are more susceptible to injury,” he said, noting that another consequence of the tight labor market is more people working overtime — any possible contributor to rising claims frequency.