Workforce – July 5, 2012
Employers renewing their workers compensation policies likely will pay more for the coverage as claims costs rise and insurers' combined ratios deteriorate, experts say.
Purchasers of primary and excess workers' comp insurance are seeing price increases, mostly in the single-digit range, brokers and insurers say, but insurers are fighting to hold on to favored accounts.
There also have been some increases in employer retention levels as insurers tighten their underwriting standards in an attempt to improve the line's profitability, they say.
"What we are seeing happening this year is that there is a growing recognition that changes need to be made in terms of workers' compensation profitability," said Curt LeBeau, vice president of insurance operations in Milwaukee for United Heartland, a unit of Accident Fund Holdings Inc. "And I think most carriers are taking some type of action to try to improve their results in the workers' comp line."
Brokers also say underwriting standards are tightening.
"They are actually underwriting and looking at losses," said Bob Jacobsen, area vice president for brokerage Arthur J Gallagher & Co. in Chicago. "The discipline is certainly back in the marketplace and, unfortunately for buyers, that means they are all going to pay more, at least in the guaranteed-cost market."
In general, the "cream of the crop" among guarantee-cost accounts are experiencing price increases ranging from about 5 percent to 7 percent, with some 10 percent increases, particularly in the Midwest, Jacobsen said. Similar accounts with loss-sensitive programs may see their pricing stay flat, "but those are harder to come by," he added.
A year ago, the nation's largest comp insurers held firm on pricing while regional underwriters still offered deals, sources said.
But now, "the regional insurers are actually being more firm" because they often don't have other lines to help drive their overall premium volume, Jacobsen said. "All the carriers are on the same page."
Overall, average price increases are in the mid-single-digit range, with guaranteed-cost programs seeing the greatest increases, said Jonathan Zaffino, managing director/U.S. casualty leader for Marsh Inc. in New York.
Buyers with less favorable loss experiences are getting additional underwriter scrutiny and higher prices, he said. While the market is transitioning, there are still deals to be had as insurer competition has not disappeared, Zaffino said.
Because of its very favorable loss experience, four insurers including the incumbent were "deeply interested" in his workers comp program when he prepared for a June 1 renewal, said Dave Dolnick, risk manager for the Brady Cos. in San Diego.
He ended up with a price reduction provided by the incumbent, which Dolnick declined to name.
Other construction companies he has contacted recently have seen renewals range from flat to 3 percent to 7 percent higher, Dolnick said.
The excess workers comp market also is firming, but it is not yet a "hard market," said Gene Maier, senior vice president of workers' comp underwriting for St. Louis-based Safety National Casualty Corp.
"We are seeing increases in rates and self-insured retentions, especially where an account has an unfavorable loss experience," Maier said. "We are underwriting on an account-by-account basis and taking the necessary action based on the specific experience of that account."
In some cases, insurers are pushing for higher retentions; in other situations, buyers are opting for higher retentions, sources said.
Overall, discussions with buyers about increasing their retention levels, shifting to loss-sensitive programs or moving to an alternative program, such as a captive arrangement, are on the increase, they added.
"I would not say that we have seen a lot of shifting to that yet, but we have seen some increased consideration of (loss-sensitive) plans," LeBeau said. "There is still anxiety on the part of customers to getting into a program where your costs can vary."
While rates can vary depending on the account, LeBeau said he is seeing price increases ranging from about 2 percent to 5 percent.
A range of issues are driving insurers to increase their pricing, sources said. Those include rising medical expenses, recession-related claim cost increases driven by an inability to return injured workers back to work and lackluster premium volume growth.
Last month, Fitch Ratings Ltd. reported that the workers' comp line posted a 117 percent combined ratio nationwide for 2011, its worst result in 10 years and worse than the combined ratio for other lines.
Recent rate increases are an encouraging sign that the market has reached a cyclical bottom, but Fitch said it expects rising medical severity will continue to hit workers' comp costs and the line's pricing will need further improvement.
"Fitch estimates that it will be difficult for the workers' compensation market to have a combined ratio of 110 percent or better in 2012 or 2013 without significantly more price improvement," the rating organization said in a statement.
Meanwhile, the combined ratio for California workers comp insurers rose to 122 percent during 2011, up from 117 percent in 2010, the Workers' Compensation Insurance Rating Bureau of California reported in late June.
This article points out that employers with poor claims experience are seeing big increases upon renewal. The fastest and easiest way to have a better underwriting profile in the renewal marketplace is to sign up for workers compensation refunds.
