Comp price hikes reflect unusual economic environment, expert says

First quarter 2011 data for workers’ comp shows a change. For the first time in nearly six years, pricing levels outside California showed an overall increase, according to a report by Towers Watson.

The information is based on surveys of 39 participating insurance companies, representing approximately 20 percent of the commercial insurance market. It is included in the company’s most recent Commercial Lines Insurance Pricing Survey.

While price reductions continued for commercial property and management liability lines, the survey showed a modest overall 2 percent price increase for workers’ comp. A company expert and workers’ comp veteran says the news is not too surprising, given the confluence of factors affecting workers’ comp.

Related Coverage
Report showing med care exceeding cash benefits is a wake-up call (10/25/10)
Study finds 78 percent error rate in employee impairment ratings (09/07/10)
Social Media Participants Air Concerns Over Loss of Adjuster Talent (04/18/11)
Medical costs, accountability among key challenges identified for ’10 (03/18/10)
Workers’ comp veteran says adjusters are losing their edge (04/18/11)

“There is not one thing happening in all 50 states,” said Bruce Hockman, workers’ compensation practice leader for Towers Watson. “There are trends that are common.”

Rates, Hockman said, are a function of cost and the delivery of those costs in each state. “The bottom line is, are costs going up? Sure,” Hockman said. “Investment income is down, medical costs are up, and frequency has stopped or turned.”

Hockman says the combination of those factors is driving pricing trends in many jurisdictions. One of the biggest drivers is the recent change in the frequency of claims, which had been decreasing for the past 15 years.

“Medical inflation doesn’t impact a claim that’s never been made. That’s helped in every jurisdiction,” Hockman said. “That trend is now stabilized and in some situations showing a reversal. It’s what a lot of us have been waiting for and concerned about.”

Coupled with the flattening or rising frequency are factors largely beyond the control of workers’ comp stakeholders. “As smart as we think we are, we can’t control the economy,” Hockman said. “We can hardly respond to it.”

Investment income, for example, has been volatile. “Even if delivery and benefit costs are flat, the return may not be sufficient so rates will go up,” Hockman said.

Added to the less-than-stellar investment returns have been the recession and the so-called jobless recovery. That’s impacted each jurisdiction differently.

Florida, for example, saw costs decrease following enactment of legislative reforms more than a decade ago. The poor labor market in Florida, combined with a turn in frequency, is pushing prices higher there.

New York has also had higher workers’ comp prices despite recent reforms. Hockman said the true value of the reforms has been diminished by the struggling economy.

“A lot of the reforms [in New York] had to do with the ability to return employees to work,” Hockman said. “All of a sudden we have 10.5 to 11 percent unemployment. I don’t care what the law says, in execution if there aren’t jobs to return to, it doesn’t work very well.”

Even more important to the workers’ comp system is the types of jobs lost. “This recession is adversely impacting one-third of workers’ comp, and that’s construction,” Hockman said. “In every other recessionary period we’ve come out of, the initiative that underscored the return out of the recession was homebuilding. It brought contractors, suppliers, timber people, faucet people — everybody that made something. It picked up the economy in one fell swoop. Now we don’t have that and likely not for some time.”

Hockman says a small group of national and regional professionals in the workers’ comp industry are succeeding despite the economic factors, especially state funds. He says they understand the extraordinary differences in the workers’ comp system of each jurisdiction and can wait for the economy to change.

“It will change,” Hockman said. “The question is do enough people have the patience to wait and not do foolish things in the meantime.”

Please follow and like us: