'Transforming' Workers Compensation Industry Presenting New Challenges, According to NCCI State of the Line

Posted Date: May 05, 2016

(Boca Raton, FL, May 5, 2016)—NCCI released its annual State of the Line workers compensation market analysis today, describing the state of the industry as "transforming."

This year’s State of the Line report indicates that the workers compensation Calendar Year 2015 combined ratio for private carriers was 94%. This is a six-point decline when compared with the 2014 combined ratio. Total market net written premium increased by almost 3% to $45.5 billion, driven primarily by an increase in payroll.

"The positive industry results we reported today are welcome news for industry stakeholders,” said NCCI President and CEO Bill Donnell. “In addition to the positive financial results, though, we see a significant transformation under way. New monitoring technology, expanded automation, and innovation in how employees work are key indicators. The regulatory environment is transforming with new participants and shifting agendas. In addition, the frequency and potential severity of system challenges are creating levels of uncertainty as we move forward this year."

"Overall, 2015 was another positive year for the workers compensation industry,” added NCCI Chief Actuary Kathy Antonello. “The combined ratio improved, claim frequency continued to decline, and operating results were strong. While the 2015 results are encouraging, we hope for continued diligence of workers compensation system stakeholders to ensure a strong and competitive system. For example, even though overall medical severity has lessened in recent years, prescription drug costs have continued to increase. Unchecked, this alone may contribute to an increase in future medical costs."

As noted above, the workers compensation calendar year combined ratio for private carriers was 94% for 2015, driven primarily by a decrease in the loss ratio. On an accident year basis, the industry-reported 2015 workers compensation combined ratio was 98%.

"On the other hand, indemnity and medical severity increases have begun to outpace increases in the average weekly wage and medical consumer price index, low interest rates continue to make investing a challenge, and employment in some sectors of the economy—particularly construction and manufacturing—remains well below prerecession levels."

As noted above, the workers compensation calendar year combined ratio for private carriers was 98 for 2014, which was driven primarily by a decrease in the loss ratio. The accident year results also showed improvement in 2014, falling four points to a combined ratio of 95.

Other market indicators and trends highlighted in NCCI’s 2016 State of the Line report include:

  • The overall reserve position for private carriers improved in 2015. NCCI estimates the year-end 2015 reserve position to be a $7 billion deficiency—down from $10 billion in 2014. Estimated reserve redundancy in Accident Year 2015 accounts for much of this reduction.

  • Average lost-time claim frequency across NCCI states declined by 3% in 2015.

  • In NCCI states, the preliminary 2015 accident year average indemnity cost per lost-time claim increased by 1% relative to the corresponding 2014 value. For medical, the preliminary average cost per lost-time claim decreased by 1% relative to that observed in 2014.

  • The workers compensation residual market pool premium volume remained flat between 2014 and 2015, and the average residual market share remained stable at 8%. The latest NCCI data shows that total residual market premium declined in the first quarter of 2016 compared with the first quarter of 2015.

Even so, the workers compensation industry faces challenges:

  • While the change in overall medical severity has lessened in recent years, prescription drug costs per active claim continued to increase.

  • The extended low-interest-rate environment threatens investment results over the long term.

  • Ongoing challenges to the industry’s renowned “Grand Bargain” could impact future benefit levels and put upward pressure on loss costs

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.

Related Links

Contact Information