Advanced Technology in WC Credited for ‘Discipline’ in Pricing, Underwriting

Nancy Grover

Sarasota, FL ( – Despite years of price decreases, the workers’ compensation line of business is a ‘strong performer,’ and perhaps, the most profitable commercial insurance line of late.

The comments from a pair of reports on the P&C industry paint a picture of the overall market as relatively positive with rates on the increase — except in workers’ compensation. What that means remains a question.

“The U.S. property/casualty insurance industry is positioned for moderate improvement in underwriting profits for 2019 and 2020,” said James Auden, Managing Director for Fitch Ratings, in a statement accompanying a new report. “Pricing momentum in many commercial insurance lines is offset by prospects for weakening performance in the key personal auto and workers’ compensation space.

The report noted that while other lines have increased rates, “Workers’ compensation remains the outlier to other segments, with rates declining for nearly five consecutive years… but is also, by some margin, the most profitable commercial lines segment in the last five years.”

A.M. Best said workers’ compensation “Remains a strong performer, despite continued pressure on rates, offsetting some of the negative effects of other lines on the overall commercial lines performance.” It said that competitive market conditions are dominating the line, although the most recent price decreases are “fairly muted” compared to where they have been in previous cycles.

Despite the price reductions, loss reserves have continued to develop favorably. “The advancements in use of data and technology in this line have contributed to the general level of discipline in the market in terms of pricing and underwriting decisions, despite compounded rate decreases,” the Best report said. “Both frequency and severity trends remain favorable, benefiting the results of the workers’ compensation line.”

Price increases are anticipated in all commercial lines in 2020, except workers’ compensation, the reports said. “However we do expect companies to remain disciplined in their underwriting even in workers’ compensation,” said AM Best Director Jennifer Marshall.

Commercial Market

In its Market Segment Report, “Market Segment Outlook: U.S. Commercial Lines Best forecasts A.M. Best predicted “a market segment outlook of stable,” for commercial insurance lines in 2020. It cited such things as “improved market conditions and solid levels of risk-adjusted capitalization” as helping insurers through short-term profitability challenges.”

It noted the impact of “social inflation on current year losses and prior year loss reserves for casualty lines remains a key headwind facing the overall commercial lines segment.” Factors such as corporate liability, third-party involvement in litigation financing and the emergence of what it called ‘reviver’ legislation extending the statute of limitations on sexual misconduct claims “have expanded the effects of social inflation into general liability and directors and officers liability.”

Continued uncertainty about emerging exposures “such as cyber liability, opioids and e-cigarettes” are among the negative factors that face the industry.

The report said the following factors are driving the stable market outlook:

  • AM Best expects overall current market conditions — price increases and maintenance of discipline with respect to terms and conditions—to continue through 2020; however, the commercial automobile line remains challenged despite several years of substantial rate increases;
  • Although underwriting results have varied in recent years, due primarily to elevated catastrophe losses, overall operating and net results remain profitable, demonstrating an ability to increase capital organically; and
  • Industry surplus resumed an upward momentum in 2019, with the markets rebounding and lower reported catastrophe losses, and has surpassed its year-end 2017 level.

“Moderate improvement,” is expected for the P&C line for 2020, according to Fitch Ratings. “The industry is poised to generate moderately improved underwriting profits in 2019 and favorable surplus growth from operating earnings and higher unrealized investment gains. Rising premium rates in many commercial lines segments will likely foster continued underwriting profits in 2020.”

Its Report, Fitch Ratings 2020 Outlook: U.S. Property/Casualty Insurance, the company said it expects pricing increases to moderately outpace loss costs.

Its list of issues to watch going forward include:

  • Premium rate hardening in the commercial lines market
  • Prospects for modest underwriting profit improvement
  • Catastrophe losses subside, but remain a constant threat
  • Capital strength a source of stability

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