NCCI’s State of the Workers' Compensation Line
NCCI recently published their annual “State of the Line” for workers’ compensation and the prognosis is healthy. From increased payrolls and underwriting profits to decreased premium rates and claims frequency, industry trends look good for both carriers and insureds.
Premium Levels Fall
The two big drivers of changes to written premium volume, payroll and premium rates, moved in opposite directions during 2017. Payroll was up 4.4%, showing moderate increases in most states and industries. The increases were also fairly evenly split between increases in employment and increases in wage rates. Meanwhile, state approved changes to premium levels were down 5.4%. The net result of these and other factors added up to a 0.7% decrease in written premiums. Correspondingly, nearly half of all responding employers noted decreases in their premiums.
Claims Continue Their Downward Trend
States across the nation have sought to move worker’s compensation premium levels lower in reaction to lower associated medical costs. Claim frequency rates have declined steadily over the last 3 decades and continued their slide in 2017. Conversely, average severity has trended upward due to inflation and the rising costs of medical care. However, recent growth in severity was moderate and in line with the growth in wages. Taken in concert with premium level changes, the outcome of claim trends for 2017 was a reduction in loss ratio from 53 to 49%.
Carrier Profits Climb
Underwriting profits for insurance carriers are measured as a combination of ratios that take carrier expenses such as underwriting, loss adjustment, claims, and dividends over premiums. A combined ratio below 100% is indicative of an underwriting profit. In 2016, the combined ratio for private workers’ compensation carriers nearly reached its low point in modern history, 93%, and then fell again in 2017 to its low point in the last half century, 89%. However, these profits were more than offset by losses incurred by other lines of property and casualty insurance, including 3 major hurricanes and the California wildfires. As a whole, the property and casualty industry saw its ratio climb from 101 to 104%.
Some Trends Expected to Continue
Rating organizations must like what they are seeing, as rates and lost costs continue to plummet. Filings enacted through May of 2018 represent an additional decrease of 9.6% in projected 2018 premiums, or nearly double the decreases seen in the year prior.
For more detailed analysis and a live recording of NCCI’s presentation click here.