The impressive results enjoyed by the workers’ compensation industry are unlikely to continue, a new report from Conning Inc. shows.
The study, released this week, suggests that while workers’ comp premiums have been rising in the past six years thanks to growth in payrolls and the expanding economy, it will soon be eclipsed by the softening insurance market and meteoric rise in medical costs.
“Workers’ compensation insurers have seen substantial improvements in recent performance thanks to years-long focus on safety and loss prevention programs, medical loss containment and return-to-work initiatives,” said Steve Webersen, head of insurance research at Conning. “While these have all benefited the industry, it is increasingly clear that workers’ compensation insurers are now facing a turn in fortune.”
Webersen highlighted pressures in investment income, the rate environment and medical costs as “driving a significant deterioration in combined ratio performance over the next few years.”
In 2015, the line reported one of its best results in 40 years, with a loss ratio of 68.4%, a combined ratio of 95.4% and an investment income ratio of 17.7%. This year, however, the previously mentioned headwinds are leading to what Conning calls “inexorable” consequences.
Some may be able to combat these pressures and remain sustainable, however. In the executive summary of the report, Conning found that insurers are placing strong emphasis on three areas: underwriting, claims and loss prevention. While many lines of business rely heavily and underwriting and risk selection to drive results, workers’ comp insurers should pay special attention to claims management and particularly to loss prevention.
“Safety and loss prevention programs and post-injury loss mitigation were identified as the most significant success drivers and elements of strategy,” Conning said.
Insurers should also refocus strategy to safeguard quality underwriting over traditional growth activities.
“The workers’ compensation insurers that will focus on protecting underwriting performance above growth will fare best in the coming years,” Webersen said.
The study, “Record Profitability in Workers’ Compensation Insurance: Strategies for Continued Success,” analyzes workers’ comp performance data over 10 years for national multilines, regionals, state funds and specialist insurers.
Fixed amount fee schedules keep hospital costs down: WCRI study
Berkshire agrees to pull controversial workers' comp products