By nature, I am an optimist. By professional training, I am an underwriter, so my optimism is always balanced by clear-eyed realism.
After all, irrationally optimistic insurance underwriters rarely have long and successful careers. When Hurricane Katrina was barreling toward New Orleans in 2005, I asked a fellow underwriter if he was concerned. He looked me in the eye and said, "You’d better be clear on your underwriting approach and risk appetite well before an event like this."
Successful underwriters, like other business leaders, rely on trustworthy data and the insights of experts to inform their decision-making. Doing so ensures those decisions are based on a solid foundation.
A critical role for NCCI is to provide timely insights and authoritative data about the workers compensation (WC) system. Our annual carrier executive survey of workers compensation leaders helps us understand where to focus our research and deliver solutions to best serve the industry. NCCI pays close attention to survey feedback and top-of-mind topics gathered from our daily interactions with carriers, regulators, and other key stakeholders.
Lingering Worries
Insurer executives continue to comment on the long-term financial health of the workers compensation system.
In the NCCI survey, an often-cited carrier concern focuses on the steady decline in rates and loss costs during the past several years. While consumer prices spiked in 2022 and inflation seems to be diminishing, executives also remain worried about rising medical costs, reminiscent of what we experienced in the early 2000s. NCCI’s survey also reveals lingering concerns about uncertainty in the overall economy and potential risks from a changing workplace and workforce.
With all those potential risk factors in mind, a few insurance executives have asked us whether the data and analysis currently being used are enough to evaluate potential risks to the long-term health of the system. It’s an understandable question from the clear-eyed realists—most of whom have an underwriting or actuarial background—who lead workers compensation carriers.
Healthy Skepticism
Today, key industry data indicates a strong and healthy workers compensation system:
- Claim frequency has steadily decreased for two decades. While data showed some volatility during the COVID-19 pandemic, 2022 returned to the long-term decline in claim frequency.
- Medical severity has been moderate in recent years. Even during the past two years as inflation has climbed, price pressure on medical WC claims costs has been slow to rise. Additionally, fee schedules in most states help control most categories of medical costs.
- Wages have risen significantly since the pandemic and higher wages generally translate to higher indemnity payouts. However, because premiums are based on wages, higher indemnity costs are naturally offset by increasing premiums.
- Strong employment and wages, declining loss frequency relative to premium, and moderate changes in claim severity all contribute to a continuation of declining loss costs.
We will continue to challenge ourselves and analyze the data with healthy skepticism to ensure that we are not lulled into a false sense of security.
Preparing With Purpose
NCCI remains vigilant, proactively addressing potential industry challenges.
Our team of actuaries and researchers conducted extensive data analysis on
medical costs to understand the drivers and impact of inflation on the workers compensation system. We are providing more timely
insights into the labor market by translating data from monthly jobs reports to assist decision-makers. We are preparing a comprehensive report on the ratemaking process to enhance transparency for all stakeholders. And, through the NCCI Academy and our soon to be released, newly modernized
Learning Center, we are transforming the way we deliver education for all workers compensation professionals.
"If there’s one thing that’s certain in business, it’s uncertainty."—Stephen Covey
Let’s not forget that the insurance industry exists because there is uncertainty. To succeed it has to be able to accurately measure and then manage that uncertainty. When it comes to workers compensation, NCCI continues to be a key resource to the industry. We have the data, expertise, and balanced perspective to provide insights that help industry leaders manage uncertainty. That will continue to be NCCI’s mission.
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