NCCI Offers "Balanced" Outlook for Workers Compensation Industry

Posted Date: May 08, 2014

(Boca Raton, FL, May 8, 2014)—NCCI today released its annual State of the Line workers compensation market analysis, describing the current state of the industry as “balanced.”

This year’s report indicates that the workers compensation calendar combined ratio was 101 in 2013, a seven-point decrease from 2012 and a 14-point decline since 2011.

“We are finally starting to see an industry in balance with these results,” said NCCI President and CEO Steve Klingel. “Today, industry costs are largely contained, claims frequency continues to decline, and the system in most states is operating efficiently. In short, the market is operating as it should on behalf of most stakeholders.”

“Overall, the workers compensation line showed a number of positive results in 2013,” added Kathy Antonello, NCCI chief actuary. “Premiums grew for the third consecutive year, and at the same time, the combined ratio fell by seven points. Going forward, however, some challenges remain.

“Slow growth in employment is impeding robust premium growth. And, while investment gains are strong, current yields are likely not sustainable in today’s low-interest-rate environment,” she said. “Also, the pending expiration of the Terrorism Risk Insurance Act (TRIA) continues to be a concern, as does the uncertain impact of the Affordable Care Act (ACA) on workers compensation.”

As noted above, the workers compensation calendar year combined ratio for private carriers was 101 for 2013. The accident year results also showed notable improvement in 2013, falling eight points to a combined ratio of 99.

In other good news, lost-time claim frequency maintained a path of decline in 2013, down 2%, on average, in NCCI states. The 2% decline is within NCCI’s long-term annual estimate of a of 2–4% decline per year.

Other market indicators/trends highlighted in NCCI’s 2014 State of the Line report include the following:

  • For the fourth consecutive year, the ratio of investment gains on insurance transactions to premium remained near the long-term average of 14%.

  • This investment gain outcome, combined with the underwriting results, produced a workers compensation pretax operating gain of 14% for 2013. This represents a significant increase over 2012, and the industry’s first double-digit return since 2007.

  • The overall reserve position for private carriers improved in 2013, following five consecutive years of deterioration. NCCI estimates the year-end 2013 reserve position to be an $11 billion deficiency for private carriers.

  • In NCCI states, the average indemnity cost per lost-time claim increased by a modest 2% in 2013, following increases of about 1% in both 2011 and 2012.

  • The average medical cost per lost-time claim increased by 3% in 2013. This is the third straight year showing a change of this magnitude.

  • The workers compensation residual market experienced a second straight year of significant growth in 2013. Premiums grew by more than 30%, and the average market share in the residual market increased from 7% to 8%. NCCI’s latest data shows the pace of growth has slowed in the first quarter of 2014.

  • Despite the growth in premium volume, the residual market policy year combined ratio held steady in 2013 at 109. The total underwriting loss in the residual market pools serviced by NCCI grew to $98 million, up somewhat from $73 million in 2012.

The Short- and Long-Term Outlooks

In 2013, the workers compensation line continued to show signs of recovery. Results improved materially, including the following:

  • The combined ratio for workers compensation improved again
  • Another year of improvement for underwriting results
  • Premium grew for the third consecutive year
  • Claim frequency declined 2% in NCCI states
  • Claim severity increases remained stable

Even with the improvements, workers compensation is faced with some ongoing challenges

  • Slow growth in employment, particularly in the manufacturing and construction industries, is impeding additional premium growth
  • Significant issues, such as the renewal of TRIA and the effect of the ACA on workers comp, continue to cause uncertainty
  • A continuing low-interest-rate environment threatens investment results over the long term

NCCI is the nation’s most comprehensive source of workers compensation insurance information. We gather data, analyze industry trends, and prepare objective insurance rate and loss cost recommendations. These activities, together with our research, analytical services and tools, and overall commitment to excellence, help foster a healthy workers compensation system.

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