As 2012 comes running around the bend heading into the final quarter it’s not too early to begin to look at how the 2013 workers compensation market might look. Referencing the National Council of Compensation Insurers (NCCI), the 2011 preliminary calendar year combined ratio for workers compensation insurers is estimated to be 115 percent, the same as in 2010. This might be considered good news except that these figures represent the highest combined ratio for private workers compensation insurers since 2001, when net written premium for workers compensation insurers actually increased 7.9 percent. Please don’t forget the precipitous fall in workers compensation premium that occurred between 2007 and 2009 when more than 20 percent of written premium evaporated. Thus a minimal increase on a reduced premium base is not as significant as it appears. Private workers compensation insurers saw a small increase in the value of their investment income over the past year, however it was not sufficient to offset vast underwriting losses. For good measure let’s add to the equation the economy’s stalled recovery. The stalling economy may have been the last straw to break the camels back sending pricing rocketing skyward.
In challenging times workers compensation insurance carriers tend to put renewed emphasis on underwriting as they try to make up lost profit on their investment portfolios. What does this mean for the end user/business owner? Many accounts are seeing price increases ranging from 5–20 percent. Small to medium-sized accounts are seeing larger increases than large national accounts. Claims experience is still the number one driving pricing variable determining the percentage of the workers compensation premium increases and what level of retention is offered for those accounts with loss sensitive plans.
Self-insured retentions for excess workers compensation programs are trending higher with most insurers requiring a minimum self insured retention of $500,000, even for accounts with favorable claims experience. In order to mitigate these changes, insureds are using buffer layer policies—an occupational injury policy that provides coverage for most all types of work-related injuries. This permits an insured to maintain the same lower retention level from the prior policy, but it adds to the fixed costs of a self-insured program.
A significant change in how workers compensation rates are calculated, affecting over 75 percent of the jurisdictions occurs in January 2013 when the primary/excess split point threshold in the experience rating modification formula rises from $5,000 to $10,000 per claim (with additional increases in subsequent years). Since primary losses carry more weight in the calculation of an experience modifier than excess losses, this change may have a significant impact on workers compensation premiums, particularly for entities in industries that suffer frequent, minor claims.
At Metropolitan Risk Advisory we believe it’s critical for buyers of workers compensation to proactively approach their next renewal by reviewing their claims histories now. We suggest that all our clients run their loss analysis with frequency so they are apprised how their losses are trending as that will have a significant impact on their workers compensation renewal costs. Further we suggest reviewing loss control and claim services to verify that they are performing effectively and efficiently consistent with the goals and benchmarks you have established. If you haven’t established goals and benchmarks then that’s a different discussion. Begin the renewal process early, compiling in-depth historic premium and loss information supplementing the review of alternative options, such as higher retentions. Prepare a thorough market submission, get all communications from the broker in writing, and keep executive management informed as the renewal process progresses to make the best decisions possible in the hardening marketplace.
Photo by Christopher Gower on Unsplash 
