Frequency, Loss Costs, Rates—Everything’s Down in Workers Comp

Although workers compensation insurance trends can vary dramatically state to state, 2018 tells “a pretty consistent story across the nation,” says Jeff Edinger, senior division executive, National Council on Compensation Insurance (NCCI).

With the exception of Hawaii and Louisiana, NCCI filed exclusively decreases in every U.S. state this past year—“and probably half of those have been double-digit decreases,” Edinger points out. “We’ve had even more double-digit decreases this year than last year.”

For the vast majority of states, this was the second or third year in a row of rate decrease filings from NCCI, and carrier pricing for workers comp has also been flat or decreasing. In the third quarter of the year, MarketScout found that workers comp was the only commercial line to clock a composite decrease, with average rate changes coming in around -3%.

“Rate decreases are driving perception that costs are down, and they are,” says Michael Bourque, president & CEO of The MEMIC Group. “People are paying less than they were, and that’s all driven by the decreasing frequency across the country, which has been going on for years and is expected to continue.”

Edinger says NCCI’s data confirms a long-term decline in workers comp claims frequency due to better workplace safety, citing a 4% improvement in claims frequency over the last 20 years and 6% improvement the last two years in a row.

“There are lots of problems in lots of different parts of workers comp, but those problems are largely camouflaged by the fact that fewer people are getting hurt,” says Kevin Ring, lead workers compensation analyst at the Institute of WorkComp Professionals—which means “the overall amount of money being spent on workers comp claims is going down.”

What problems? Most come from the medical side. “There are severity issues in workers comp that are not going away,” Bourque says. In the event of significant injuries from auto accidents, falls from heights and burns, for example, “we have wonderful but increasingly expensive new ways to get people well and back at work. And within workers comp, the statutory definition of the benefit is usually that you do your best for the worker without regard to cost.”

In terms of what’s necessary and available in today’s world of highly sophisticated medical technology and treatments, “that can lead to very, very expensive claims,” says Bourque, who says the industry has observed an increase in “mega workers comp claims” around the country—claims that cost $10 million or more.

Survivability rates for unintentional injuries have increased by 40% since 1978, according to information from the Journal of the American Medical Association. Consider that two or three decades ago, someone who sustained severe burns over 50% of their body was very likely to die.

“Today, with that exact same injury, that person is very likely to not only not die, but in fact to live to a pretty normal lifespan,” Ring says. “But that comes with a tremendous number of surgeries and physical therapy and a lot of stuff that’s really, really expensive.”

“This is all really good news,” Bourque emphasizes. “Because of medical intervention, more people are surviving things that in the past they may not have. It just costs more money.”

So why aren’t those types of claims competing with lower frequency trends to drive workers comp costs up? “Those types of mega claims are incredibly infrequent,” Ring explains. “They’re such a small slice of the pie.”

While Edinger says NCCI observed a 4% increase in medical claim severity last year, “both medical and indemnity severity have moderated in recent years,” he points out—which means that even though severity is still on the rise, it’s climbing at a slower rate than years past.

Heading into 2019, with frequency down and severity fairly flat, “there’s no reason to believe the pricing trend is going to turn around anytime soon,” Ring says. “If you look back over market cycles in the past, when pricing gets more aggressive and more aggressive and more aggressive, there’s a point where carriers start realizing things need to turn around. But we haven’t gotten there yet. As long as carriers can stay profitable and also cut rates, then that’s what they’re going to do.”

“We all know there’s a cycle here,” Bourque agrees. “Agents need to understand the long game here. Don’t sell a cheap, cheap price only to see it bounce back, because the laws of the marketplace have not been repealed. You need to provide consistency for your policyholder.”

For tips on how to offer your clients a high-quality workers comp experience, keep an eye on IAmagazine.com and upcoming editions of the Markets Pulse e-newsletter.

Jacquelyn Connelly is IA senior editor.