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Workers Compensation:Trends, Challenges and
OpportunitiesFocus on New York Markets
New York State Insurance Fund
New York, NY
June 17, 2015Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
Workers Compensation Operating Environment
2
Workers Comp Results Have Improved Substantially in Recent Years
Can Gains Be Maintained?
2
Workers Compensation Combined Ratio: 1994–2014P
10
2.0
97
.0 10
0.0
10
1.0
11
2.6
10
8.6
10
5.1
10
2.7
98
.5
10
3.5
10
4.5 1
10
.6 11
5.0
11
5.0
10
8.0
10
1.0
98
.0
12
1.7
10
7.0
11
5.3
11
8.2
80
85
90
95
100
105
110
115
120
125
130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14P
Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 2007-2010/11 and Were the Worst They Had Been in a Decade.
Sources: A.M. Best (1994-2009); NCCI (2010-2014P) and are for private carriers only; Insurance Information Institute.3
WC results have improved markedly
since 2011
10
9.4
11
0.2
11
8.8
10
9.5
11
2.5
11
0.2
10
7.6
10
4.1
10
9.7
11
0.2
10
2.5 1
05
.4
91
.1
93
.6
10
4.2
98
.9
10
2.4
10
7.9
10
3.5
94
.7
95
.5
98
.1
10
2.0
11
1.1
11
2.3
12
2.3
90
95
100
105
110
115
120
125
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
E
15
F
Co
mm
erc
ial L
ine
s C
om
bin
ed
Ra
tio
Source: A.M. Best (1990-2013); Conning (2014E-2015F) Insurance Information Institute.
Commercial Lines Combined Ratio, 1990-2015F*
Commercial lines underwriting
performance in 2013-14 benefited from favorable
rate environment, low cats, modest loss cost trends and prior year
reserve releases
4
118
111
93
101
110
115 115
109
102
137
116
106
129
138
98
101
103
107110
122
115115
124
102
117
103102
121
115
133
80
90
100
110
120
130
140
150
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p
Private Carriers State Funds
WC Net Combined Ratios: Private Carriers vs. State Funds, 2000 – 2014p
Average: 2000-2014p
Private Carriers: 107.7
State Funds: 118.2
Source: NCCI (2015 Regulatory and Legislative Trends Workshop, May 14, 2015); Insurance Information Institute.
-4.2
-8.6
-3.2
7.5
12
.7
19
.9
17
.5
18
.5
7.5
4.1
3.2
10
.3
16
.7
11
.3
8.1
0.5
-0.2
-0.1
5.1
13
.5
14
.0
0.7
0.1
3.2
-10
.0
-15
-10
-5
0
5
10
15
20
25
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
**
14
p
Source: NCCI analysis based on Annual Statement data.
Investment Gain Equals 1.00 minus (Combined Ratio less Investment Gains on Insurance Transactions and Other Income).
Averages reflect the following adjustments: 1990-91: adjusted to include realized capital gains to be consistent with 1992 and
subsequent years; **2013: adjusted to exclude a material realized gain resulting from a single company transaction that involved
corporate restructuring. Excluding the adjustment the operating gain is 17.7%.
Average (1994-2014p):
5.9%
6
WC Pretax Operating Gain
PRIVATE CARRIERSPERCENT
2
5
10
15
18
20 2
1
18
15
2
9
10 1
1
13
11
10
6
9
12
4
0
5
10
15
20
25
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: NCCI analysis based on Annual Statement data.
Considers all reserve discounts as deficiencies.
2014 Tabular Discount Is $4.6 Billion
7
Workers Compensation Loss and LAE Net Reserve Deficiencies, 1995 - 2014
PRIVATE CARRIERS
33%
8%
Percent of CY
Total Reserves
As Reported
$ Billions
Workers Compensation Premium: Fourth Consecutive Year of IncreaseNet Written Premium
31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3
25.0 26.129.2
31.134.7
37.8 38.6 37.633.8
30.3 29.932.3
35.136.9 38.5
35.3 35.734.3
35.433.6
30.128.5
26.9 25.9 25.0
28.6
32.1
37.7
42.3
46.547.8
46.544.3
39.3
34.6 33.8
36.4
39.541.8
44.2
0
10
20
30
40
50
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14P
State Funds ($ B)
Private Carriers ($ B)
Pvt. Carrier NWP growth was +4.3% in 2014, +5.1% in 2013 and 8.7% in 2012
$ Billions
Calendar Yearp Preliminary
Source: NCCI from Annual Statement Data.
Includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT.
Each calendar year total for State Funds includes all funds operating as a state fund that year.
9
2014 Workers Compensation Direct Written Premium Growth, by State*
PRIVATE CARRIERS: Overall 2014 Growth = +4.6%
*Excludes monopolistic fund states (in gray): OH, ND, WA and WY.
Source: NCCI.
While growth rates
varied widely, most
states experienced
positive growth in
2014
10
2013 Workers Compensation Direct Written Premium Growth, by State*
PRIVATE CARRIERS: Overall 2013 Growth = +5.4%
*Excludes monopolistic fund states (in white): OH, ND, WA and WY.
Source: NCCI.
While growth rates varied widely, all states
experienced positive growth in 2013
11
Workers Compensation Components of Written Premium Change, 2013 to 2014
Written Premium Change from 2013 to 2014
Net Written Premium—Countrywide +4.6%
Direct Written Premium—Countrywide +4.6%
Direct Written Premium—NCCI States +4.5%
Components of DWP Change for NCCI States
Change in Carrier Estimated Payroll +4.7%
Change in Bureau Loss Costs and Mix -1.4%
Change in Carrier Discounting +0.4%
Change in Other Factors +0.8%
Combined Effect +4.5%
Sources: Countrywide: Annual Statement data.
NCCI States: Annual Statement Statutory Page 14 for all states where NCCI provides ratemaking services.
Components: NCCI Policy data.
Growth is now almost entirely payroll driven
12
WC Approved or Filed and Pending Change in NCCI Premium Level by State
Latest Change for Voluntary Market
*Excludes monopolistic fund states (in gray): OH, ND, WA and WY.
Source: NCCI.
While growth rates
varied widely, most
states experienced
positive growth in
2014
WC Approved Changes in Bureau Premium Level (Rates/Loss Costs)
12.1
7.4
10.0
2.9
-6.4
-3.2
-6.0
-8.0
-5.4
-2.6
3.5
1.2
4.9
6.6
-6.0-6.5
-8.8-7.8
-3.2-2.1
-1.2
0.4
8.4
2.2
0.5
-2.2
-10
-5
0
5
10
15
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p
Percent
Calendar Year
Cumulative
1990–1993
+36.3%
Cumulative 2000–2003
+17.1%
Cumulative 2004–2011
-30.8%
Cumulative 1994–1999
-27.8%
*States approved through 4/24/15.
Note: Bureau premium level changes are countrywide approved changes in advisory rates, loss costs and assigned risk rates as filed by applicable
rating organization, relative to those previously approved.
Source: NCCI.
By Effective Date for Total Market
Approved rates/loss costs are down for the first time since 2010
Cumulative 2011–2014
+11.8%
14
Labor Markets Trends:
Recovery Continues in 2015
2014
Largest Increase in Jobs Since 1997
Unemployment Rate Fell to Lowest Level Since 2008
Payrolls Expanded to Record High14
15
Unemployment and Underemployment Rates: Still Too High, But Falling
2
4
6
8
10
12
14
16
18
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Jan
10
Jan
11
Jan
12
Jan
13
Jan
14
Jan
15
"Headline" Unemployment Rate U-3
Unemployment + Underemployment RateU-6
“Headline” unemployment
was 5.4% in Apr. 2015. 4.5% to
5.5% is “normal.”
Source: US Bureau of Labor Statistics; Insurance Information Institute.
January 2000 through April 2015, Seasonally Adjusted (%)
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is continuing to improve.
15
U-6 soared from 8.0% in March
2007 to 17.5% in October 2009; Stood at 10.8%
in Apr. 2015.8% to 10% is
“normal.”
16
Unemployment Rates by State, April 2015:Highest 25 States*
7.5
7.1
7.0
6.7
6.7
6.6
6.6
6.5
6.3
6.3
6.3
6.2
6.1
6.0
6.0
6.0
5.8
5.7
5.7
5.7
5.6
5.5
5.5
5.4
5.4
5.4
0
2
4
6
8
DC NV WV AK SC LA MS NJ CA CT GA NM RI AZ IL TN AL AR MO NY FL NC WA IN MI US
Un
em
plo
ym
en
t R
ate
(%
)
*Provisional figures for April 2015, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In April, 23 states and the District of Columbia had over-the-month unemployment rate decreases, 11 states had increases, and 16 states had no change.
Residual impacts of the housing collapse, weak economies are holding
back several states
17
5.3
5.3
5.2
5.2
5.0
4.8
4.7
4.7
4.5
4.4
4.3
4.2
4.2
4.1
4.1
4.1
4.0
3.8
3.8
3.8
3.7
3.6
3.6
3.4
3.1
2.5
0
1
2
3
4
5
6
MD PA OH OR KY VA MA ME DE WI KS CO TX HI OK WY MT IA ID NH MN SD VT UT ND NE
Un
em
plo
ym
en
t R
ate
(%
)
Unemployment Rates by State, April 2015:
Lowest 25 States*
*Provisional figures for April 2015, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In April, 23 states and the District of Columbia had over-the-month unemployment rate decreases, 11 states had increases, and 16 states had no change.
Strength in Energy, Agricultural States-most also avoided
housing bust
23
15
21
70
52
12
65
73
-71
32 6
4 81
55
3-1
15
-10
6-2
21
-21
5-2
06
-26
1-2
58
-42
2-4
86
-77
6 -69
3-8
21
-69
8-8
10
-80
1-2
94
-42
6-2
72
-23
2 -14
1-2
71
-15
-23
22
0-3
8
19
29
4 11
01
20
11
71
07
19
91
49
94
72
22
32
313
20
16
61
86
21
91
25
26
81
77
19
12
22
36
42
28
24
61
02
13
17
51
72
13
61
59
25
52
11
21
52
19 26
31
64
18
82
22
20
11
70
18
01
53
24
72
72
86
18
31
75 22
33
13
23
82
72
24
32
09
23
52
18
41
43
19
20
2 26
19
42
13
11
3
(1,000)
(800)
(600)
(400)
(200)
0
200
400
600
Jan-0
7F
eb-0
7M
ar-
07
Apr-
07
May-0
7Jun-0
7Jul-07
Aug-0
7S
ep-0
7O
ct-
07
Nov-0
7D
ec-0
7Jan-0
8F
eb-0
8M
ar-
08
Apr-
08
May-0
8Jun-0
8Jul-08
Aug-0
8S
ep-0
8O
ct-
08
Nov-0
8D
ec-0
8Jan-0
9F
eb-0
9M
ar-
09
Apr-
09
May-0
9Jun-0
9Jul-09
Aug-0
9S
ep-0
9O
ct-
09
Nov-0
9D
ec-0
9Jan-1
0F
eb-1
0M
ar-
10
Apr-
10
May-1
0Jun-1
0Jul-10
Aug-1
0S
ep-1
0O
ct-
10
Nov-1
0D
ec-1
0Jan-1
1F
eb-1
1M
ar-
11
Apr-
11
May-1
1Jun-1
1Jul-11
Aug-1
1S
ep-1
1O
ct-
11
Nov-1
1D
ec-1
1Jan-1
2F
eb-1
2M
ar-
12
Apr-
12
May-1
2Jun-1
2Jul-12
Aug-1
2S
ep-1
2O
ct-
12
Nov-1
2D
ec-1
2Jan-1
3F
eb-1
3M
ar-
13
Apr-
13
May-1
3Jun-1
3Jul-13
Aug-1
3S
ep-1
3O
ct-
13
Nov-1
3D
ec-1
3Jan-1
4F
eb-1
4M
ar-
14
Apr-
14
May-1
4Jun-1
4Jul-14
Aug-1
4S
ep-1
4O
ct-
14
Nov-1
4D
ec-1
4Jan-1
5F
eb-1
5M
ar-
15
Apr-
15
Monthly Change in Private Employment
January 2007 through Apr. 2015 (000s, Seasonally Adj.)
Private Employers Added 11.97 Million Jobs Since Jan. 2010 After Having Shed 5.01 Million Jobs in 2009 and 3.76 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Monthly losses in Dec. 08–Mar. 09
were the largest in the
post-WW II period
213,000 private sector jobs were created in April.
18
Jobs Created
2014: 3.042 Mill
2013: 2.452 Mill
2012: 2.315 Mill
2011: 2.396 Mill
2010: 1.282 Mill
3,042,000 jobs were created in 2014, the most since 1997
0.8%1.7% 1.8%
2.3% 2.3%
18.6%
6.6%6.2%
5.7%6.5%
5.3%
1.6%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2010 2011 2012 2013 2014 2015*
Growth in Temporary Workers vs. All Nonfarm Employment, 2010-2015*
*Through March 2015.
Source: US Bureau of Labor Statistics , Insurance Information Institute.
Annual Percent Change
Demand for temporary workers has increased 2 to 3 times faster than for workers
overall in recent years
20
Average Weekly Hours of All Private Workers, Mar. 2006—April 2015
*Seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession dates); Insurance Information Institute.
33.5
33.6
33.7
33.8
33.9
34.0
34.1
34.2
34.3
34.4
34.5
34.6
34.7
34.8
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Hours worked totaled 34.5 per week in April,
just shy of the 34.6 hours typically worked
before the “Great Recession”
Hours worked plunged during the recession,
impacting payroll
exposures
(Hours Worked)
21
Average Hourly Wage of All Private Workers, Mar. 2006—April 2015
*Seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession dates); Insurance Information Institute.
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15
The average hourly wage was $24.87 in April 2015,
up 17.2% from $21.22 when the recession began in Dec. 2007
Wage gains continued during the
recession, despite massive job losses
(Hourly Wage)
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
22
Payroll Base* WC NWP
Payroll vs. Workers Comp Net Written Premiums, 1990-2014P
*Private employment; Shaded areas indicate recessions. WC premiums for 2014 are from NCCI.
Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
Continued Payroll Growth and Rate Gains Suggest WC NWP Will Grow Again in 2015
7/90-3/91 3/01-11/0112/07-6/09
$Billions $Billions
WC premium volume dropped two years before
the recession began
WC net premiums written were down $14B or 29.3% to
$33.8B in 2010 after peaking at $47.8B
in 2005
23
Construction Employment,Jan. 2010—April 2015*
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
5,5
81
5,5
22
5,5
42
5,5
54
5,5
27
5,5
12
5,4
97
5,5
19
5,4
99
5,5
01
5,4
97
5,4
68
5,4
35
5,4
78
5,4
85
5,4
97
5,5
24
5,5
30
5,5
47
5,5
46
5,5
83
5,5
76
5,5
77
5,6
12
5,6
29
5,6
29
5,6
28
5,6
27
5,6
08
5,6
23
5,6
32
5,6
41
5,6
49
5,6
68
5,6
84
5,7
24
5,7
46
5,7
98
5,8
15
5,8
13
5,8
33
5,8
56
5,8
54
5,8
66
5,8
93
5,9
18
5,9
53
5,9
37 6,0
06
6,0
32
6,0
62
6,1
03
6,1
14
6,1
21
6,1
52
6,1
69
6,1
91
6,2
01
6,2
31
6,2
75
6,3
16
6,3
47
6,3
38
6,3
83
5,400
5,500
5,600
5,700
5,800
5,900
6,000
6,100
6,200
6,300
6,400
6,500
Jan-1
0F
eb-1
0M
ar-
10
Apr-
10
May-1
0Jun-1
0Jul-10
Aug-1
0S
ep-1
0O
ct-
10
Nov-1
0D
ec-1
0Jan-1
1F
eb-1
1M
ar-
11
Apr-
11
May-1
1Jun-1
1Jul-11
Aug-1
1S
ep-1
1O
ct-
11
Nov-1
1D
ec-1
1Jan-1
22/3
0/2
0M
ar-
12
Apr-
12
May-1
2Jun-1
2Jul-12
Aug-1
2S
ep-1
2O
ct-
12
Nov-1
2D
ec-1
2Jan-1
3F
eb-1
3M
ar-
13
Apr-
13
May-1
3Jun-1
3Jul-13
Aug-1
3S
ep-1
2O
ct-
13
Nov-1
3D
ec-1
3Jan-1
4F
eb-1
4M
ar-
14
Apr-
14
May-1
4Jun-1
4Jul-14
Aug-1
4S
ep-1
4O
ct-
14
Nov-1
4D
ec-1
4Jan-1
5F
eb-1
5M
ar-
15
Apr-
15
Construction employment is +948,000 above
Jan. 2011 (+17.4%) trough
(Thousands)
Construction and manufacturing employment constitute 1/3 of all WC payroll exposure.
24
Manufacturing Employment,Jan. 2010—April 2015*
11,4
60
11,4
60
11,4
66
11,4
97
11,5
31
11,5
39
11,5
58
11,5
48
11,5
54
11,5
55
11,5
77
11,5
90
11,6
24
11,6
62
11,6
82
11,7
07
11,7
15
11,7
24
11,7
47
11,7
60
11,7
62
11,7
70
11,7
69
11,7
97
11,8
34
11,8
57
11,8
99
11,9
16
11,9
30
11,9
41
11,9
65
11,9
61
11,9
48
11,9
51
11,9
47
11,9
61
11,9
80
12,0
02
12,0
06
12,0
06
12,0
07
12,0
05
11,9
83
12,0
11
12,0
22
12,0
40
12,0
72
12,0
86
12,1
02
12,1
22
12,1
31
12,1
42
12,1
54
12,1
77
12,1
91
12,2
05
12,2
14
12,2
37
12,2
82
12,3
01
12,3
18
12,3
21
12,3
21
12,3
22
11,250
11,500
11,750
12,000
12,250
12,500
Ja
n-1
0F
eb
-10
Ma
r-1
0A
pr-
10
Ma
y-1
0Ju
n-1
0Ju
l-1
0A
ug
-10
Se
p-1
0O
ct-
10
No
v-1
0D
ec-1
0Ja
n-1
1F
eb
-11
Ma
r-1
1A
pr-
11
Ma
y-1
1Ju
n-1
1Ju
l-1
1A
ug
-11
Se
p-1
1O
ct-
11
No
v-1
1D
ec-1
1Ja
n-1
22
/30
/2M
ar-
12
Ap
r-1
2M
ay-1
2Ju
n-1
2Ju
l-1
2A
ug
-12
Se
p-1
2O
ct-
12
No
v-1
2D
ec-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Ma
y-1
3Ju
n-1
3Ju
l-1
3A
ug
-13
Se
p-1
3O
ct-
13
No
v-1
3D
ec-1
3Ja
n-1
4F
eb
-14
Ma
r-1
4A
pr-
14
Ma
y-1
4Ju
n-1
4Ju
l-1
4A
ug
-14
Se
p-1
4O
ct-
14
No
v-1
4D
ec-1
4Ja
n-1
5F
eb
-15
Ma
r-1
5A
pr-
15
Manufacturing employment is a surprising source of strength in the economy. Employment in the sector is at a multi-year high.
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands)Since Jan 2010, manufacturing
employment is up (+862,000 or +7.5%)and still growing.
25
12 Industries for the Next 10 Years: Insurance Solutions Needed
Export-Oriented Industries
Health Sciences
Health Care
Energy (Traditional)
Alternative Energy
Petrochemical
Agriculture
Natural Resources
Technology (incl. Biotechnology)
Light Manufacturing
Insourced Manufacturing
Many industries are
poised for growth, though
insurers’ ability to
capitalize on these
industries varies widely
Shipping (Rail, Marine, Trucking, Pipelines)
26
WC Profitability and Growth Trends in New York
Profitability Lags,
But Growth Leads
26
27
RNW Workers Comp: NY vs. U.S.,2004-2013
Source: NAIC, Insurance Information Institute
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
04 05 06 07 08 09 10 11 12 13
US WComp NY WComp
(Percent)
Average 2004-2013
US: 7.1%
NY: 4.9%
Workers Comp: 10-Year Average RNW NY & Nearby States
4.8%
6.7%
7.1%
7.6%
4.1%
4.9%
0% 2% 4% 6% 8%
Vermont
U.S.
Pennsylvania
New York
Connecticut
New Jersey
Source: NAIC, Insurance Information Institute
2004-2013
New York Workers Comp profitability is
below the US average and regional
average
29
Workers Comp. DWP Growth: NY vs. U.S., 2005-2013
Source: SNL Financial.
-0.8
%
-3.7
%
-11
.6%
-12
.4%
-3.4
%
9.6
%
10
.7%
8.5
%
9.8
%
2.3
%
-2.2
%
5.8
%
14
.7%
14
.4%
9.2
%
2.7
%
-17
.2%
9.5
%
-20%
-10%
0%
10%
20%
30%
40%
05 06 07 08 09 10 11 12 13
US DWP Wcomp NY DWP Wcomp
(Percent)
Average 2005-2013
US: -0.04%
NY: 5.2%
30
WC COST DRIVERS
Medical and Indemnity Factors
30
Workers Compensation Lost-Time Claim Frequency Declined in 2014
31
-4.4
-9.2
0.3
-6.5
-4.5
0.5
-3.9
-2.3
-4.5
-6.9
-4.5 -4.1 -3.7
-6.6
-4.5
-2.2
-4.3-4.9
10.6
-3.8
-6
-2.9-2.0
3.6
-0.8
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p
Indicated
Adjusted*
Frequency Change: 2007—2012
Contracting: 7.97.1 -9.3%
Manufacturing: 13.612.0 -11.8%
Percent
Accident Year*Adjustments primarily due to significant audit activity.
2014p: Preliminary based on data valued as of 12/31/2014.
Source: NCCI Financial Call data, developed to ultimate and adjusted to current wage an voluntary loss cost level; Excludes high deductible
policies; 1994-2013: Based on data through 12/31/13. Data for all states where NCCI provides ratemaking services, excluding WV.
Frequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost level
Cumulative Change of –51.1%
(1994–2013 adj.)
$9
.8
$9
.5
$9
.2
$9
.7
$9
.8
$1
0.4
$1
1.2
$1
2.2
$1
3.5
$1
4.8
$1
6.1
$1
6.6
$1
7.4
$2
2.3
$2
2.5
$2
2.2
$2
2.2
$2
2.6
$2
3.6
$1
8.1
$1
7.5
$1
9.2
$2
0.8
$2
1.9
+0.0%
-2.5%+1.0%+9.1% +1.3%
+5.9%+3.1%
+1.0%+4.6%+3.1%
+9.2%
+10.1%
+10.1%
+9.0%
+7.7%+5.9%
+1.7%+4.9%-2.8%-3.1%+1.0%
+6.6%
5
7
9
11
13
15
17
19
21
23
25
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p
Indemnity
Claim Cost ($ 000s)
Accident Year
Workers Comp Indemnity Claim Costs: Modest Increase in 2014
Average indemnity costs per claim were up 4% in
2014 to $23,600, the largest increase since 2008
Average Indemnity Cost per Lost-Time Claim
+4%+1.9%
Cumulative Change = 141%
(1991-2014p)
2014p: Preliminary based on data valued as of 12/31/2014.
1991-2013: Based on data through 12/31/2013, developed to ultimate
Based on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
4.2%
5.2%5.6%
4.7%
6.3%
2.3%
1.1%
4.7% 4.6%
2.7%
1.1%
5.9%
7.7%
9.0%
10.1%
4.6%
5.9%
6.6%
9.1%
1.9%4.3%
2.7%
3.0%3%2.9%
2.3%
1.1%3.5%
3.6% 3.1%
1.0%
0%
1.3%1.0%
-2.5%
1.0%
1.7%
10.1%
9.2%
3.1%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
95 97 99 01 03 05 07 09 11 13
Change in CPS Wage Change in Indemnity Cost per Lost-Time Claim
WC Indemnity Severity vs. Wage Inflation, 1995 -2014p
2014p: Preliminary based on data valued as of 12/31/2014; 1991-2010: Based on data through 12/31/2010, developed to ultimate. Based on the states
where NCCI provides ratemaking services. Excludes the effects of deductible policies. CPS = Current Population Survey.
Source: NCCI
Annual Change 1994–2014
Indemnity Claim Sev.: +4.6
US Avg. Weekly Wage: +3.4%
Indemnity severities usually
outpace wage gains
WC indemnity severity turned
positive again in 2011
Workers Compensation Medical Severity:Moderate Increase in 2014
34
Accident Year
Annual Change 1991–1993: +1.9%
Annual Change 1994–2001: +8.9%
Annual Change 2002–2010: +6.0%
Average Medical Cost per Lost-Time ClaimMedical
Claim Cost ($000s)
$8
.1
$8
.2
$8
.1
$8
.8
$9
.1
$9
.8
$1
0.8
$11
.7
$1
2.9
$1
3.9
$1
5.7
$1
7.1
$1
8.4
$1
9.4
$2
0.9
$2
2.1
$2
3.4
$2
5.0
$2
6.0
$2
6.1
$2
6.8
$2
7.4
$2
8.3
$2
9.4
+6.8%+1.3%-2.1%+9.0%+5.1%
+7.4%+10.1%
+8.3%
+10.6%+7.3%
+13.5%
+8.8%
+7.7%+5.4%
+7.8%
+5.8%
+5.9%
+6.9%+4.0%+0.5%
+2.4%+2.4%
+3.2%+4%
5
10
15
20
25
30
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p
2014p: Preliminary based on data valued as of 12/31/2014.
1991-2013: Based on data through 12/31/2013, developed to ultimate
Based on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
Cumulative Change = 263%
(1991-2014p)
Accident Year
Medical severity for lost time claims was up 4% in 2014, the
largest increase since 2009
35
Workers Comp Change in Medical Severity by State, Avg. Annual Change, 2009-2013
Percent
Source: NCCI’s Analysis of Frequency and Severity of Claims Across the Country as of 12/31/13 on ncci.com.
Values reflect methodology and state data underlying the most recent rate/lost cost filing.
TX changes are for the years 2010-2013.
While growth rates
varied widely, most
states experienced
positive growth in
2014
The change in lost-time medical severities from 2009-2013 ranged from a low of -6% to a high of 9%
4.5%
3.5%
2.8%3.2%
3.5%4.1%
4.6% 4.7%
4.0%4.4% 4.2% 4.0%
4.4%
3.7%3.2% 3.4%
2.5% 2.4%
5.1%
7.4%
10.1%10.6%
13.5%
5.4%
7.8%
5.9%
6.8%
4.0% 4.0%
3.0%3.7%
3.2%
2.4%2.4%
0.5%
5.8%
8.8%
7.7%
7.3%
8.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p
Change in Medical CPI
Change Med Cost per Lost Time Claim
WC Medical Severity Generally Outpaces the Medical CPI Rate
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
Average annual increase in WC medical severity from 1995 through 2014 was well above the medical CPI (6.4% vs. 3.7%), but the gap has narrowing. Lost-time medical
severities appear to on the rise again.
37
WC RESIDUAL MARKETS
WC Residual Markets Remain
Fairly Stable
37
17
8
16
6 17
0
16
8
15
9
14
3
12
8
11
2
10
3
10
4
11
7
11
7
11
2
11
4
10
9
10
6
10
5
10
6 11
1
11
4
10
9 11
4
11
4
10
8
10
6
10
611
6
9697 1
00
80
100
120
140
160
180
200
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
p
Includes pool and direct assignment data for all NCCI-serviced WC residual market pool states.
Source: NCCI, Residual Market Management Summary.
WC Residual Market Combined Ratio, 1985-2014p
Residual market combined ratios have
fallen along with voluntary market
combineds
38
Percent NCCI-Serviced WC Residual Market Pools
Calendar Year
39
Commercial Lines Pricing Trends
Survey Results Suggest Commercial Pricing Has
Flattened Out
39
40
Change in Commercial Rate Renewals, by Line: 2015:Q1
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewals Were Mixed to Flat in Q1:2015; EPL and Commercial Auto Led the Way
Percentage Change (%)
-0.2%
1.4% 1.5%
2.4%
-4.0%
-2.2% -2.2% -2.1%
-0.7%-0.4%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Co
mm
erc
ial
Pro
pe
rty
Bu
sin
ess
Inte
rru
ptio
n
Ge
ne
ral
Lia
bili
ty
Um
bre
lla
Co
nstr
uctio
n
Wo
rke
rs
Co
mp
Su
rety
D&
O
Co
mm
erc
ial
Au
to
EP
L
WC renewals were roughly flat in early 2015
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Workers Comp Rate Changes,2008:Q4 – 2015:Q1
Source: Council of Insurance Agents and Brokers; Information Institute.
-5.5
%
-4.6
%
-4.0
%
-4.6
%
-3.7
%
-3.9
%
-5.4
% -3.7
%
-3.4
% -1.6
%
2.6
% 4.1
%
7.5
%
7.4
%
8.3
%
8.1
%
9.0
%
9.8
%
8.3
%
5.8
%
4.9
%
4.1
%
3.1
%
2.3
%
0.7
%
-0.4
%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
14
:Q2
14
:Q3
14
:Q4
15
:Q1
WC rate changes were positive for 15 consecutive quarters, before turning slightly
negative in early 2015
(Percent Change)
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
42
Selected Challenges in the Workers Comp Market
42
A Number of Issues Have Stirred Interest in Workers Compensation in
the First Part of 2015
43
Challenges Raised in the Workers Comp Line
Opt Out Legislation: Coalition of large employers is
aggressively pushing for legislation that would allow
them to forego purchasing WC coverage in favor of
creating their own programs while also seeking to specify
the criteria for claiming and the size of benefits
Allowed in TX for many years and passed in OK in 2014
Failed in TN in 2015; Lobbying in AL, FL, GA, NC, SC
Challenges to Exclusive Remedy: Assertion that after
reforms in several states the WC “Grand Bargain” has
been breached and that benefits are now insufficient
Objective of trial lawyers is to tap into the tort system
44
Five Leading WC Proposal Categories to Watch in 2015
Drug Formularies: A few states have formularies and interested is
increasing as studies show formularies can save money
Medical Marijuana: Not priceable (no data). Some states take position
that medical marijuana is not reimbursable (even if legal in state).
Impact on drug-free workplace credit?
Fee Schedules: Most states have fee schedules but 9 still do not. CT,
NC added schedules in 2015, AK expected soon. Failed to introduce
in NH and VA. Cost savings are often significant.
Attorney Fees: Fee caps being challenged. Moving from a fee
schedule to an uncapped “reasonable” fee standard is expected
result in a significant increase in costs. Should fee be paid out of the
award or by insurer/employer?
Opt Out: Effort by some large corporations to restructure WC system
www.iii.org
Thank you for your timeand your attention!
Twitter: twitter.com/bob_hartwig
Download at www.iii.org/presentations
Insurance Information Institute Online:
45