State of the Workers Comp Market: ‘A Good Pattern’

The National Council on Compensation Insurance (NCCI) 2015 workers compensation insurance rate filing cycle started in July 2015 and will continue through June 2016. Out of the 38 filings the organization typically makes over the course of the year, the NCCI has already filed 32.

According to Peter Burton, senior division executive for state relations, 23 filings have been for decreases, 8 have been for increases and one—Illinois—was amenable to a no filing.

“Most of all the numbers we filed with state regulators are single-digit adjustments, small ups or downs,” Burton says, noting the largest increase was +3.4% in Virginia and the largest decrease was -14.8% in Oklahoma. “If you look at the myriad of changes proposed, they’re pretty much in a tight band of + or -5%.”

This year also marks the first positive combined ratio—98%—in several years, Burton says, adding that “it looks like the preliminary estimate for 2015 suggests a decrease of .96. These new numbers have not been fully validated, but if they were to hold and they were to be used in the future for the next series of rate filings, one could argue that for the 2016-2017 filing cycle, it may look to be a similar pattern to the 2015-2016 filing cycle. It could be a good pattern for policyholders.”

Pricing Trends

Matt Lyon, head of workers compensation at Farmers Insurance Group and its subsidiary Foremost Insurance Group, says workers comp insurers are making healthy returns at this point in the cycle. “Most companies are profitable, investment returns are low, and you couple that with negative rates coming through—I would describe it as a very competitive market going into 2016,” he says. “You’ll see that balanced with a sense of discipline because carriers don’t want to repeat the mistakes of the past.”

According to Burton, the 2015 rate filings and data so far are consistent with the message the NCCI shared at its annual meeting in spring 2015: Conditions have improved in the workers comp environment and premium is growing nationally in the workers compensation systems. In fact, he says in the first six months of 2015, premiums continued to rise, increasing another 5.7% for private carriers.

“This is approximately the third-plus year of consecutive loss cost decrease, for a majority of the states,” says Donna Urben, vice president and workers compensation product manager at Erie Insurance. Why? Urben says rates “are driven by frequency and severity trends”—and that “frequency trends have been on the decline for many years now.”

“Losses were moderate and injuries are occurring less frequently than they’ve done over the last several years,” Burton agrees. The economy also significantly affects workers comp pricing “because we collect payroll as our exposure base,” Urben says. As the economy continues to improve in many regions of the U.S., “more people are working,” Burton says—resulting in more premium for workers comp carriers.

Finally, capacity to write workers comp is abundant. “There are monoline carriers, regional carriers, national carriers—everybody wants to write comp,” Urben says. “That creates a really competitive atmosphere for workers comp. For the consumer, the policyholder, the insured, they have options.”

On the Horizon

Urben says two major workers comp-related industries that are experiencing growth include home health care and oil and gas. “They may not be new types of emerging risks, but home health care is growing across the U.S., while oil and gas has its specific pockets of strengths,” she says.

Burton adds solar energy to that list: “Even with oil prices going way down, it’s still an area that’s growing.”

Yvonne Hobson, vice president of corporate underwriting at Amerisure, expects heavier construction classes to pick up steam, citing ongoing discussions about the need to invest in U.S. infrastructure like roads, bridges, water systems and transit systems.

“Heavier construction classes such as these could be an opportunity for agents for growth,” Hobson says, pointing out the $305 billion measure to fund highways and mass transits Congress passed in December. “That’s going to fund a lot of road projects, which means you could see an increase in payrolls for these classes of business and also you could have contractors that are going to get into this new area.”

Lyon also anticipates more high-hazard business coming into the market. “Companies have really good underwriting margins right now, so they’re looking to grow,” he points out. “As an example, for people that do roofing, years ago many carriers would have said, ‘No, that belongs in the E&S market or the assigned risk market.’ But we’re starting to see more carriers entertain those kinds of risks now.”

And like every other insurance market, workers comp will likely evolve under pressure from the sharing economy. Lyon points out a California judge’s recent ruling that Uber drivers can be considered employees. “That could be a new type of risk coming into the market in terms of more people may want to carry workers comp as a result of the increase in the sharing economy,” he explains. “It’s just making sure we accurately capture these exposures.”

But by far the most dramatic impact on workers comp pricing will involve health care and regulations on both a state and national level. For details on these two important topics, keep an eye on and upcoming editions of the Markets Pulse e-newsletter.

Jacquelyn Connelly is IA senior editor.