A.M. Best recently reported on the workers’ compensation market that premium growth is flat. It cautioned that insurers must protect their profit margins by better claims management. They cannot depend, it said, on either higher investment returns or premium growth for profits as much as they have done in the past.
On the heels of Best’s assessment, now comes an annual report on the state of workers’ compensation prepared by the National Academy of Social Insurance. NASI’s new report, for the year 2015, is thicker than its past annuals and full of insights. And, with some help from other data sources, we can use it to look into the future.
Since the trough of the Great Recession in 2008, employment covered by workers’ comp has increased by about 10%. Yet the workers’ comp system has stopped growing and in some respects shrunk. When one compares the state of the market in 2015 with the cycles of the industry since the early 1990s, when insurer profits were peaking as they have been recently, it becomes clear that insurance costs will decline because insurers can afford to lower rates in order to compete.
Worksites will continue to become safer. Workers’ comp costs — wage replacement, medical benefits, overhead costs — have nowhere to go except down. The opioid epidemic is drawing to a close. It has been for several years. The only worrisome issue is workforce aging, which is associated with higher co-morbidities and lower return to work rates.
But a high severity of claims will persist — a matter we will get to that shortly.
Look at how just in the past few years the market has behaved. Most of these following figures come from the NASI report. More recent data from the National Council on Compensation Insurance tend to confirm the NASI picture of 2013 through 2015.
Premiums declined in 34 states in 2013-2015. The number of states with a 5% or more decline in this period totaled 16; the number with a 5% or more increase, five.
Medical benefits paid declined in 34 states during 2013-2015, with the average change for all states at minus 2.3%. Cash benefits (mostly wage replacement) declined in 34 states during 2013 -2015.
According to the Bureau of Labor Statistics, the absolute number of private sector injuries with at least one day lost time declined marginally from 2011 through 2015. During these years the number of workers covered by workers’ comp increased by about 10 million! The injury rate per hundred workers continues to decline. NCCI reports that the frequency of lost time compensable injuries declined by about 15% between 2011 and 2015.
Three things stand out for the future. First, consolidation will continue among servicing organizations, such as insurers and vendors that service claims payers. Second, greater attention will be given to automation that enables cost cutting and spurs competitive advantage. The high cost and disruptive nature of automation today, such as artificial intelligence, will further consolidation. Who manages automation will be at a distinct advantage.
The third thing is found by digging further. One discovers an interesting twist to injury numbers. Even though total injuries are declining, and even though the National Council for Compensation Insurance notes steady reductions in the frequency of lost time compensable injuries, the total number of serious injuries has been going up. In 2011 there were 255,000 private sector work injuries with at least 30 days lost. By 2015 that had risen to 258,000. The average severity of lost time compensable injuries has been increasing.
Most benefits and overhead are driven by these serious injuries. The total system declines while the core workers comp agenda — caring for those seriously injuries — remains steady. If we go over the entire history of workers’ comp since the early 1990s, when managed care came in and the industry got a lot more complicated, I suspect that we will see a pattern repeating itself. Gains are made in some aspect of claims, medicine, underwriting, and safety, but challenge of addressing serious injuries persisted. Managing them remains difficult. Herein lies the future of many a workers’ comp professional.
Workers’ comp will remain a very large part of the insurance market. Total costs to employers is $95 billion, estimated by NASI, and Best’s says that as of year-end 2016, workers’ comp reserves accounted for $166 billion or 26.9% of the total U.S. property/casualty reserves.
Before you brush up your resume to check out of the industry, consider how big, and how very complicated, it will remain.
ABOUT THE AUTHOR
Peter Rousmaniere is widely known throughout the workers’ compensation industry, both for his writing and consulting experience. Based in the picture perfect New England town of Woodstock, VT, he is a regular on the conference circuit, and is deeply in tune with trends and developments within the industry. His passion is writing and presenting on issues largely related to immigration, and he maintains a blog on the subject at www.workingimmigrants.com.
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