Unprecedented Positive WC Stats Give Experts Pause

Orlando, FL (WorkersCompenstion.com) - “We’re in an atypical environment right now,” said NCCI’s Chief Actuary Kathy Antonello. “Prices have been decreasing for some time. It’s this mixed market, like a soft and hard market. Reserve deficiencies have evaporated. The combined ratio is very low. ..it’s just a lot of things going on in the same time that we haven’t seen before. “

Antonello was describing the workers’ compensation system at a time when it seems nearly all indications point to one of, if not, the most positive workers’ compensation environment in history. The comments followed her State of the Line presentation during NCCI’s Annual Issues Symposium.

Latest Stats

Among the highlights about the 2018 workers’ compensation system are: 

• Net written premium – up to $48.6 billion
• Calendar year combined ratio – 83 percent, down from 89 percent
• Overall reserve position for carriers - $5 billion redundancy; “A redundant workers’ compensation reserve position has not been observed in at least 25 years,” NCCI noted
• Frequency – down 1 percent
• Claim severity for AY indemnity – up 3 percent
• Claim severity for AY medical lost-time – up 1 percent

A 5.3 percent increase in payroll was more than offset by a 9 percent decrease in total loss costs.  

Not surprisingly, Antonello is getting lots of questions about the reasons for the unprecedented numbers. It’s a question she finds somewhat difficult to answer.

“I’ve always said it’s difficult to measure something that doesn’t exist anymore,” she told WorkersCompenstion.com. “With a spike in claims, it’s easy to say, ‘there are more large losses,’ etc.; but when claims disappear or reserves get lower there is nothing to measure. It’s just going away. You have to use more of a theory or hypothesis. It’s not as easy to pinpoint.”

On the continued decline of claims frequency, Antonello hypothesized that several issues are likely responsible. One is the strong economy.

“It’s very likely that companies are hiring less qualified or younger workers; those are likely to have more injuries,” she explained. “That’s probably the most likely reason.”

Severe winter weather in 2018 contributed to an increase in slip and fall injuries, leading to a uptick in injuries. Finally, increased claims frequency was at least partially due to the continued volatility in the workers’ compensation line.

The Future

One of the biggest concerns of workers’ compensation stakeholders is whether the good news about the industry will continue, or are we in for a big swing in the other direction?

“I can’t predict the future,” said NCCI CEO Bill Donnell. “But two factors are within our control that may mitigate future challenges.”

One is the improved analytics and faster access to data, allowing stakeholders to see the impact of their decisions and quickly make corrections. Donnell likened it to the way things have changed since life in London during the 1700s, when a ship bound for America was followed by a second ship that would return home to report on whether the first ship made it; i.e., whether there might be an insurance claim.

“Think about that feedback. It was a year or more” before the other ship returned,” he explained. “Technology has shortened the cycle time of feedback loops.”

The other issue on which stakeholders have the ability to control the peaks and valleys of the workers’ compensation marketplace is investment in competencies around core processes, such as claims handling, underwriting, and reserving processes.  

Delivering on the WC Promise

Each year, NCCI comes identifies  a word to describes the current workers’ compensation environment. This year’s word is, ‘delivering.’

“We’re in an industry that provides a very good social safety net. As important as that is, we forget about it, and talk about our daily challenges. There will always be challenges,” Donnell explained. “The objective for that word ties back to our [conference] theme of insights. One insight I wanted to deliver was that we should never, never lose the thought that we deliver for injured workers. So this idea of delivering on a 100-year-old promise is a very powerful statement. It distinguishes workers’ compensation from other safety nets.”

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