Most Workers’ Comp Insurers Recovering with the Economy, but Challenges Remain

08.23.2017


By Jim Thompson

Sarasota, FL (WorkersCompensation.com) - The ongoing economic recovery has been good for workers’ compensation insurance providers, but they face some long-term challenges, according to a July report from Moody's Investors Service.

The report notes that workers’ comp comprises close to 10 percent of the total direct premiums written by U.S. property and casualty insurers, ranking it third — behind only personal automobile and homeowners insurance.

According to a news release on the Moody’s report, “the workers' compensation sector has improved significantly since 2011 as the domestic economy and labor market have gradually recovered and insurers have achieved rate increases.”

The latest annual report from the National Association of Insurance Commissioners (NAIC) lists the top 25 property and casualty insurance providers across a number of types of insurance, shows the importance of workers’ compensation insurance to the industry.

Here are the top 10 workers’ compensation providers, as ranked by the NAIC for 2016 in the March 2017 report:

Company -                              Direct Premiums Earned -    Market Share (Percent)

Travelers Group -                           $4,500,803,968 -             7.60

Hartford Fire & Casualty Group -   $3,274,157,410 -            5.71

AmTrust NGH Group -                     $3,120,465,900 -            5.33

Zurich Insurance Group -                $2,862,335,620 -            4.88

Berkshire Hathaway Group -            $2,572,248,964 -           4.64

Chubb Limited Group -                    $2,499,895,950 -             4.39

State Insurance Fund -                    $2,479,932,849 -              4.18

Liberty Mutual Group -                     $2,386,093,708 -              4.12

American International Group -         $2,339,558,974 -            3.68

State Compensation Ins. Fund -        $1,540,665,261 -            2.77

A drop in the U.S. unemployment rate, from 10 percent several years ago to the current 4.4 percent, has been particularly positive for workers’ comp providers in recent months, Moody's Vice President Siddhartha Ghosh, lead author of the report, said in the Moody’s news release.

Technological advances also are creating a positive outlook for workers’ compensation insurers, according to Moody’s. 

On the business side, the “emergence of artificial intelligence, machine learning and big data will improve underwriting and efficiency of processing business over time,” Moody’s news release noted. 

Also, “over the next decade, advancements in automation and technology will change the nature of work and the underlying exposures in various industries as more routine tasks are automated.” 

Pano Karambelas, a senior credit officer at Moody’s and one of the authors of the workers’ comp sector report, told WorkersCompensation.com in an interview that “in principle, you’d expect to see declines in frequency and severity” of workplace accidents over time in connection with automation. But, he added, those declines might not be seen immediately, as automation is being integrated into workplace processes.

Overall, however, the expectation for automation is “that there would be a decline in certain types of injuries,” Karambelas said.

The Moody’s report also notes the possible impact of public health issues on workers’ comp cases.

"Longer-term public health trends — increasing prevalence of diabetes, obesity, and abuse of prescription drugs — could result in higher medical inflation, creating reserving challenges for the sector," the report suggests. “Reserving challenges” refer to insurers’ claims reserve funds, money set aside for payment of claims that have not been settled.

On the insurer side of the public health trends noted by Moody’s, Travelers Group — listed at the top of the latest NAIC ranking in workers’ comp — recently developed an Early Severity Predictor that  “identifies the likelihood of an injured employee developing chronic pain so that they can avoid it in recovery and reduce the need to use opioids or other painkillers,” according to BusinessWire.

Rich Ives, a workers’ comp vice president at Travelers, told WorkersCompensation.com via email that the predictive tool “has helped us improve chronic pain claim outcomes by up to 50 percent and assisted in reducing opioids by more than 30 percent across all of our customers’ workers’ (sic) compensation claims the past two years.”

The Moody’s analysis also acknowledges prescription drug costs as a challenge for workers’ comp, and notes legislative efforts in many states to establish drug formularies — lists of drugs preferred for use in workers’ comp cases — to reduce those costs.

Just as with automation in the workplace, it may take some time for formularies to have an impact in workers’ comp, but it’s likely that the “longer-term impact would be to reduce costs,” Karambelas said.

Currently, according to a recent WorkersCompensation.com story, no fewer than eight states have workers’ comp drug formularies in place, with both California and New York scheduled to implement formularies next year. Six other states — North Carolina, Louisiana, Illinois, Kentucky, Nebraska and Pennsylvania — reportedly are also considering formularies.

Steve Bennett, counsel for the American Insurance Association (AIA), confirmed Moody’s assessment, saying in an email that formularies “are critical in reducing the dangers to injured workers caused by inappropriate pharmaceutical prescriptions.”

In an interview with PropertyCasualty360.com, Moody’s Ghosh said one of the surprises in the workers’ comp report was “that the claims frequency trend has been flat to slightly negative in workers’ compensation (sic) for a long time even as the economy has added a significant number of jobs in the last couple of years.”

Ghosh went on to tell PropertyCasualty360.com that with “improvements in workplace safety, we expect frequency trend for our rated insurers to remain slightly negative.”

And, Ghosh told the insurance news website, “with medical cost trends in the mid-single digit range, we expect overall loss cost trends to remain low unless there is an uptick in lawyer involvement or medical inflation.” 

Travelers’ VP Ives departed somewhat from Ghosh, saying that while “the industry and the employers and employees we serve have experienced a reduction in claim frequency with improvement in safety and technology advancements, the same have also experienced a recent rise in the number of severe injuries occurring given the changing environmental factors.”

Ives went on to say the “workers’ (sic) compensation industry continues to be challenged by rising medical costs and will be for the foreseeable future.”

Matt Zender, Vice President and Workers’ Compensation Product Manager for AmTrust Financial Services, ranked third by the NAIC, said in an email interview with WorkersCompensation.com, that workers’ comp insurance “is attractive to AmTrust as a class that is highly consistent and predictable…” Zender said he expects “the small business environment for workers’ compensation (sic) will continue to evolve and mature” as the needs of larger businesses “work their way into small comp.”

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