As another year comes to an end, the Workers' Compensation industry inevitably looks back over the preceding twelve months and attempts to analyze what has occurred, and what will happen in 2014. Now it's my turn.
Well, it has certainly been an interesting year for the workers' comp industry. In the face of continuing a combined loss ratio well above 100%, there is hope of renewed sanity and profit dancing in the minds of those expecting Santa's elves to bestow upon the insurance landscape a bright horizon. Keep dreaming, boys and girls.
Trying to discover some silver lining in the 2013 WC cloud, we can be joyous about some things that did not happen. For instance the Federal Government has made no recent mention of attempting to nationalize state Workers' Compensation laws. This subject has been raised in the past, and generally sends a shudder through the industry, akin to a molten lead enema being administered to state employers. Most cognoscenti understand the efficiency level of the Federal Government. One popular theory is that if the Feds were in charge of the Sahara Desert, it would run out of sand in three years. But that probably would not an issue as they would simply print more sand.
I can picture the government opening up a website for employers to sign-up for Federally mandated WC insurance. Since workers compensation insurance is statutorily mandated, what could possibly go wrong? It would probably go as “smooth” as the SCHIP Section 111 on-line registration. Of course, The Affordable Care Act Internet registration is another exemplar of governmental efficiency. Below is a picture of my wife as she experiences the astoundingly quick, nay, almost instantaneous, response time from the governmental designed and executed “easy access” website for healthcare insurance.
Of course, state government control of WC has been less than propitious on many occasions. Labor and Employers remained locked in a perpetual death embrace as each attempts to obtain superiority in the way WC laws are written and enforced. There are incremental gains for both combatants that confer a momentary advantage, only to have the pendulum swing in the opposite direction before too long. Both sides cry “foul” so often and claim the system is in jeopardy if the laws aren't changed that Chicken Little would be embarrassed. But, hey, it's been this way since the United States jumped on the WC law bandwagon in the early 20th Century. No surprise that this Labor/Employer wrestling match will exist until the planet implodes.
Let's not forget about the insurance carriers who underwrite WC. They are engaged in a great social endeavor to render assistance to injured workers in an attempt to integrate them back into the competitive job market as soon as possible consonant with sound medical evidence. Oh, they also want to make a profit. So how did that work out in 2013? Not very well from the expert prognostications that have been thus far rendered. Perhaps a 118% combined is staring the industry in the grill. Not exactly the stuff of which are cause for celebration. How can this deplorable situation be altered? Charge more! If only it was that facile.
This past year was actually a period that rate “strengthening” became an objective of insurance companies. WC behemoths such as Travelers have openly indicated that they were seeking to raise premiums to levels that would exceed projected loss costs. What a concept! Unfortunately, there is a delicate balance between raising rates and maintaining market share. A nimiety of rate increases will alienate at least a portion of the book. These employers will then seek WC insurance from a less expensive outlet, or perhaps self-insure as an alternative to what they consider financial rape.
Some insurance companies, most notably Meadowbrook and the Tower Group, lost their way and suffered the financial consequences. Market discipline is a harsh mistress, at least until the Feds decide the companies are “too big to fail” and then use taxpayer money to bail them out. Regrettably for them, Meadowbrook and Tower Group were too small and did not qualify for a Fed sponsored financial safety net. Whoops!
Medical management continues to be a much discussed subject within the realm of WC. As loss expenditures are now about 60% medical versus 40% indemnity, there is little wonder why this topic will continue to be bandied about ad infinitum (ad nauseum). Walk down any aisle at any WC conference and at least a dozen medical management booths will be immediately to each side of you. There will be plaintive stares from the denizens of these “boxes” who becken you hither with tales of billions of dollars in savings if you use their services. A general question always pops into my cranium at this point; if you are so expertly exceptional at saving money, why have WC medical loss costs skyrocketed over the last 30 years? As sports media nabobs always say, “scoreboard.” If at the end of the day, the medical expenditures, as a component of overall loss cost, continues to escalate, what have you really accomplished? But on occasion they do have some nice giveaways, so that is always a good reason to use them.
What are the most logical predictions for the WC world in 2014? See the above, multiply by two, and shake vigorously. Next year at this time you will probably witness more of the same. Unless something else of a cataclysmic nature transpires at which point we'll be talking about that subject.
Happy holidays to all. Now I have to go and see how my wife is doing on the government healthcare insurance website.
John D'Alusio has over 30 years experience in P/C insurance with executive management positions in administration, field operations, and claim technical areas. Mr. D'Alusio has had many articles published in industry periodicals, and is also a contributing author to the LexisNexis published, “Complete Guide to Medicare Secondary Payer Compliance.” He writes a monthly column for Risk & Insurance Magazine and is a quarterly columnist for AMComp Magazine.