Work comp rates continue to drift ever lower, with new declines announced pretty much every week. While this is great for employers and taxpayers, the impact on insurers, TPAs, and the work comp ecosystem is rather less than “great.”
It's going to end…someday…right?
It always does, but this time around feels different.
Here's where we are today – and why.
Rates and payroll drive premiums; as we're at or darn near full employment with pretty static average weekly wages, premiums are likely holding steady or up just a hair.
Graph shows changes in average weekly wages adjusted for inflation from the Bureau of Labor Statistics
Rates follow declines in claim costs, so insurers are making tons of money. Historically high profits result fromlow combined ratios (defined as the ratio of total losses plus admin expense to premiums earned). As long as claim costs continue to drop, profits will remain strong.
Result – insurers are really happy. So are employers.
With work comp medical costs static [see detailed report from NASI, free to download] and claim counts stable-to-lower, there's little if any growth in the number of claimants, the number of medical bills, and the volume of medical services. This means payers have fewer dollars to upgrade systems, pay staff, invest in improvements and training. As premiums drop, overhead costs get squeezed too.
Think of it this way – a California insurer collects $1 million in premiums this year. If it keeps all its current business and doesn't gain any new customers, that same customer base = $900,000 in revenue next year. The 10% decrease means 10% fewer dollars to spend on IT, marketing, staff training, process improvement.
The impact on service companies isn't quite as straight forward – for reasons we'll dive into tomorrow.
What does this mean for you?
Fewer dollars is good news for some, but is likely preventing many insurers from much-needed investment and upgrades.
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Disclaimer: WorkersCompensation.com publishes independently generated writings from a variety of workers' compensation industry stakeholders. The opinions expressed are solely those of the author and do not necessarily reflect those of WorkersCompensation.com.