PropertyCasualty360

July 18, 2012

As the workers’ compensation line continues to experience poor underwriting results and strong momentum toward rate increases, more companies are turning toward forming captives to combat rising costs, a Marsh executive says.

Speaking today during a Webinar to discuss the Marsh Global Insurance Market Quarterly Briefing, Jonathan Zaffino, leader of Marsh’s U.S. Casualty Practice, noted that workers’ comp. remains one of the few casualty lines still experiencing a significant pull on rates. This line, he notes, “has experienced another difficult year in 2011” with a combined ratio of 115, the worst seen since 2001, and the third straight year the line has led all commercial lines with the highest combined ratio.

Indemnity and medical costs continue to rise, he adds, and this, along with poor investment earnings, “leads to a relatively bleak picture” for workers’ comp., says Zaffino.

Julie Boucher, Marsh’s Americas leader in Captive Solutions Practice, says the broker has seen more use of captives to mediate the escalating costs of workers’ comp. She says companies are using captives in a range of ways to control costs, from covering a company’s deductibles to insuring the company’s entire workers’ comp program.

She notes that, according to Marsh’s benchmarking report, 20 percent of the firm’s captives have workers’ comp in their insurance programs, ranked third behind property (35 percent), and general third-party liability (32 percent).

Speaking broadly about the casualty market in general, Zaffino says that the “tug of war” that underwriters seemed to be engaged in during early 2011—as they tried to strike a balance between underwriting performance and market appetite and competitiveness—is giving way to an environment of stability.

At the mid-point of 2012, says Zaffino, most casualty lines “remain stable, excluding certain industry groups with unique issues.”

Underwriters, he notes, are taking longer to complete renewals as they apply their guidelines more carefully. Overall, he says the market is “tentative,” but for most clients, stability should reign for the remainder of the year.

Zaffino advises policyholders to start the renewal process early and put a strategy in place aimed at obtaining the best terms.

“Options do indeed exist,” says Zaffino, adding that having the time to find options is critical to secure coverage a client needs.

Workers compensation continues to lead all property casualty commercial lines with the highest combined ratio. Brokers are struggling to hold onto their clients as rates continue to hike and employers desperately search for lower quotes. The good news is that brokers do have options in order to curb their clients' workers compensation costs. Workers compensation premium recovery offers to lower your clients' mods, getting them refunds and credits in the process, while providing them with a better underwriting profile to enter the renewal marketplace with. Whild rates are going up for everybody else, you can be the brokerage that actually lowers its clients' costs.

July 16, 2012

MarketWatch

Net premiums written (NPW) by U.S. competitive state compensation funds experienced a 7.1% increase in 2011, reversing a yearly trend that began in 2004, according to a new report from A.M. Best Co.

These state funds, which make up a significant portion of A.M. Best's U.S. workers' compensation composite, generally serve their respective states as a guaranteed market and typically provide coverage to companies that experience difficulty obtaining insurance in the general marketplace. Many of the funds also compete in the broader workers' comp markets in their states.

The report, "State Funds' Net Premiums Written, Surplus Grew in 2011; Signs of Change Ahead," adds that a number of factors led to increased premiums in 2011, including improved premium audit adjustments; stabilization of employment and payrolls (albeit at a lower level than before the 2008-2009 recession); and a stronger pricing environment, especially as the year progressed.

Other topics discussed in the report include:

– The state funds' calendar-year combined ratio for 2011 hit its highest level in 10 years, measuring 134.9. On an accident-year basis, the combined ratio increased less than 1 point from 2010, to 132.3.

– Despite declines in underwriting results and net investment income, the state funds as a group posted a modest operating profit of $2.4 million in 2011.

– Reforms to California's workers' comp system had a significant impact on the state funds' collective results because of the size of California's workers' comp market.

– A.M. Best expects the state funds to continue growing at a faster pace than the rest of the workers' comp industry. However, it remains to be seen what effects privatization of certain state funds, including Arizona and Maryland, will have on policyholders and the markets in those states.

State Funds provide cheaper pricing options and a last resort for employers with high risk and bad experience, but the growth of the State Fund market spells bad news for brokers as they generally do not make any commissions through State Fund accounts. Through workers compensation premium recovery, brokers can offer their clients and prospects value-added services that have no out of pocket expenses and offers cash back returns with future savings to keep. More importantly, brokers provide their clients with a better underwriting profile to enter the renewal marketplace with. As the workers compensation market hardens and carriers become more selective, workers compensantion premium recovery offers the only immediate solution to a better underwriting profile, more carrier choices, and ultimately happier and loyal clients… and brokers make first-year and renewal commissions.

New York Compensation Rating Board’s application submitted to the Department of Financial Services on May 15, 2012, to increase loss costs by an average 11.5% effective October 1^st has been disapproved by State Financial Services Superintendent Benjamin Lawsky, citing that “A loss cost increase at this time – resulting in increased workers’ compensation premiums – would harm struggling businesses.”

Facing opposition from business groups and the state’s Workers Compensation Board contention that NYCIRB had overstated trends in indemnity and medical severity, Lawsky prevented the fourth increase in rates or loss costs since 2009 and maintained the status quo with regard to loss costs for the upcoming year.

As the workers compensation market continues to harden and carriers struggle to cover costs, we can expect more selectivity from insurance companies in writing workers compensation policies. With workers compensation premium recovery, you can knock down your clients' current and up to 6 prior years' mods and provide them with a better underwriting profile to enter the renewal marketplace with.

Modified ex-mods penalize poor risks

Business Insurance – Roberto Ceniceros

July 16, 2012

Employers with poor loss histories will pay even more for their workers comp coverage starting next year as most states change the way premiums are calculated. But policyholders with proven risk management practices and safety programs that reduce workplace injuries will benefit from NCCI Holdings Inc.'s change in the methodology determining an individual employer's experience modification factor, experts say. The Boca Raton, Fla.-based National Council on Compensation Insurance helps 38 states set their workers comp rates. The ex-mod changes begin with Jan. 1, 2013, policy purchases or renewals. It marks the first time in two decades that the rating organization has updated the “split point” used in its experience rating plan to more accurately reflect individual employer loss frequency and severity. An employer's ex-mod factor has a significant affect on employer expenses because underwriters rely on them to adjust premiums with credits or debits. Every NCCI state has approved the split-point adjustment, said Peter Burton, NCCI's senior division executive for state relations. NCCI's change could have a “material” impact on individual employers' premiums, said Pamela F. Ferrandino, casualty practice leader, placement for Willis North America Inc. in New York. “What we will see this do is really reward companies that have worked hard to improve and maintain their loss profile,” Ms. Ferrandino said. “Those risks that really have better-than-average experience benefit from being better than average.” But employers “with bad experience are going to see a higher apportionment of debits” added to their pricing, while those with a good loss history will see more credits, said Bill Carney, vp and chief underwriting officer at Accident Fund Holdings Inc. in Lansing, Mich. “So it really underscores the need for employers to invest in loss control, invest in safety, invest in their people and have a very strong return-to-work program,” Mr. Carney said. “That is regardless of (employer) premium size.”But midsize employers with guaranteed-cost insurance policies will see a greater impact from the split-point change than will larger employers, Ms. Ferrandino said. That is because larger employers are more likely to employ risk managers and safety personnel, and they tend to maintain large deductibles, sources said. But even larger employers will have to beef up their pre-loss safety programs and solidify their post-loss practices, such as modified-duty return-to-work programs to get the best insurance pricing, Mr. Carney said. “If they were doing a good job before, they need to do an even better job now if they are having problems with their loss experience,” Mr. Carney said. “If you are a large employer and (already) have a high-debit mod, you are probably going to have a higher debit mod after these changes. ”There are other implications as well. Large construction project owners, for example, often choose contractors based in part on the builder's ex-mod, which likely will change. And NCCI's ex-mod change comes amid firming pricing for workers compensation coverage, which could accelerate some employers' shift from guaranteed-cost programs to buying loss-sensitive policies in order to pay lower premiums up front, sources say. NCCI's ex-mod change calls for increasing the experience rating split point from its current $5,000 to $10,000 in 2013. It will increase to $13,500 in 2014 and to $15,000 in 2015. In future years, it will be indexed for claim-expense inflation. A workers comp loss up to the split point is known as the “primary loss” and reflects frequency of such claims, according to NCCI documents. The amount of loss above the split point is referred as the “excess loss” and reflects severity.“Under this split-rating method, actual primary losses are given full weight in the experience rating formula while actual excess losses only receive partial weight,” according to NCCI. The biggest impact, therefore, will be on pricing, particularly for employers experiencing high-frequency, low-severity workers comp claims in the states where NCCI helps determine rates, said Richard Pankhurst, a director in the insurance advisory practice at PricewaterhouseCoopers L.L.P. in Austin, Texas.Mr. Burton agreed. “It is a plan that is heavily leveraged on frequency of loss vs. severity of loss because those are the types of injuries that get controlled by employers through their safety programs,” he said. Yet employers should not lose sight of mitigating high-severity losses, Mr. Pankhurst advised. The split-point change is needed because the average claim cost has increased threefold since the last update, rendering the current experience rating plan less sensitive to reflecting an individual employer's risk experience, NCCI said. For insurers, the impact will be revenue-neutral because they will collect more premium from employers with greater losses and less from those with fewer losses, said Insurance Information Institute Inc. President Robert Hartwig. But insurers will benefit as accounts will have greater incentive to improve their loss experience, making them more profitable, Mr. Hartwig said. Employees also will benefit from workplaces that now have a greater incentive to reduce injuries, he added.

As I wrote in a previous blog, the new NCCI experience rating split point change will increase premiums for employers with debit experience mods. Safety programs will help employers reduce premiums in the long run.  However, in many cases, results are hard to measure. Furthermore, as I have repeatedly pointed out, safety programs will not help with the effects of the 2013, 2014, and 2015 split point change.  This is further explained on the experience rating split point change page on our website.  On the other hand, workers compensation premium recovery is the only solution that offers immediate results that will impact the 2013, 2014, and 2015 experience mods. The best part about workers compensation refunds is that there are no out of pocket expenses to your clients and brokers earn first year and renewal commissions.

Recently, I added a new page to my website called the “experience rating split point change.”  Within the past few days, I've seen a lot of articles floating around regarding the experience rating split point change. Although these articles do provide some valid and helpful information, I wanted to post a blog to give my take on some of the things I found to be questionable and to stress what's really important and who will be affected most by these changes.

"Per the June 13 meeting of the WCRIB’s classification committee, the split point in California, which is recommended by the Workers’ Compensation Insurance Rating Bureau (WCIRB) and approved by the Department of Insurance, is $7,000 and the bureau has no plans to ask for an increase next year, but did discuss recommendations about researching the possibility of establishing separate experience mod formulas for smaller and larger employers in the future."

The fact is that for the time being, California is staying with the current $7,000 split point.

"NYCIRB looks like it’s adopting NCCI’s 2013 split point of $10,000 but how further changes will unfold in the next few years are still unclear."

New York is on board with NCCI's split point change. New York employers who have debit experience modifications are likely to see big increases in their workers compensation premiums. 

"NCCI says 'bad mods will get worse and good mods will get better.'"

I can't stress enough the importance of the first part of this statement that "bad mods will get worse."  Brokers should help their clients reduce their debit mods now.

"The best thing employers can do is institute safety programs — many of which were cut during the recession — to lower the number of claims they have each year.”

We are still in the recession. The unemployment rate is still nearly double of what it was during the previous workers compensation hard market. I don’t see payrolls going up (although I do see premiums going up!) and employers are still hesitant to spend money on any project that doesn’t produce immediate savings.  The fact of the matter is that safety programs will help employers reduce premiums in the long run.  However, in many cases, results are hard to measure and more importantly, they will not help with the effects of the 2013, 2014, and 2015 split point change.  This is further explained on the experience rating split point change page on our website.  On the other hand, workers compensation premium recovery offers immediate results that will impact the 2013, 2014, and 2015 experience mods and the best part about workers compensation refunds is — there are no out of pocket expenses to your clients.  Brokers earn first year and renewal commissions.  
 

       Reinsurance Rate Increases Moderating at July 1

PropertyCasualty360.com – July 10, 2012

Reinsurance renewals continue to firm, but ample capacity is offsetting some pricing pressures produced by past catastrophe activity and catastrophe-model changes, says reinsurance broker Guy Carpenter.

“In 2011 the industry experienced one of its most challenging years, due to the tremendous volume of catastrophe losses across the globe,” says Lara Mowery, Guy Carpenter’s head of global property specialty, in a statement. “With light losses to date in 2012, July 1 property renewals are marked by disciplined underwriting amid plentiful capacity. Based on the impact of July increases in 2011 and available capacity, pricing trends have moderated.”

In a 22-page report titled “Strong Risk Assessment Focus Amid Plentiful Capital During 2012 Renewals,” Guy Carpenter, a subsidiary of Marsh & McLennan Companies, notes that losses for the first quarter of 2012 were at $11 billion, a tidal drop from the $76 billion loss experienced by the reinsurance industry worldwide at the same time last year.

Furthermore, the capital position in the broker’s global reinsurance composite for Q1 2012 increased 4 percent to $184.5 billion from year end 2011, the result of continued reserve releases and falling yields on high-grade fixed-income securities. Guy Carpenter predicts these favorable trends to continue into January of next year.

Property pricing in the U.S. rose by more than 6 percent so far in 2012 compared to 2011, as reinsurers reacted to the release of new model RMS version 11 and last year’s cat losses.

But the report notes that pricing trends have moderated throughout this year. Overall, Guy Carpenter says, it is more difficult than ever to generalize with respect to pricing in the property-catastrophe market. Significant pricing adjustments, both up and down, still exist depending on a line’s individual circumstances.

David Flandro, Guy Carpenter’s global head of business intelligence, observes, “Catastrophe losses have been relatively limited for the reinsurance sector to date in 2012. As a result, we have seen a continued improvement in the sector’s dedicated capital position, which has mitigated price increases. As we enter hurricane season, we will continue to track catastrophe activity, reserving and asset-side issues in our analysis of pricing trends for the remainder of the year.”

For other reinsurance business, United States casualty lines showed rate increases as of July.

Worker’s compensation showed “the most evident rate hardening,” while general liability rates hardened slightly.

Catastrophe bond issuance remained vigorous. Fifteen Guy Carpenter transactions came to market in the first quarter of 2012, totaling $3.4 billion. Risk principal outstanding for the first half of 2012 was at $13.5 billion, a whopping 113 percent increase from the prior year, and almost as high as the issuance surge post-Katrina, Rita and Wilma, which topped a record $14 billion.

As this article points out Worker’s compensation showed “the most evident rate hardening,”  in July while general liability rates hardened slightly.  Workers Comp Recovery helps brokers maintain clients and win new workers compensation business. 

Risk & Insurance – July 5, 2012

What Impact Will PPACA Have on Workers' Compensation?

As everyone knows by now, on June 28, 2012, the United States Supreme Court issued a ruling in the historic case of National Federation of Independent Business v. Sebelius, Secretary of Health and Human Services. In this ruling, the Court indicated that certain provisions of the Patient Protection and Affordable Care Act were Constitutional, allowing the law's implementation to move forward.

While there are still significant issues that need to be addressed — such as funding and administration — it's time to put politics behind us and start talking about the impact that health reform may have on workers' compensation.

On its surface, there is very little mention of workers' compensation in the PPACA. The only direct mention is related to black lung coverage and some very narrow occupational disease exposures surrounding asbestosis mining in Libby, Mont.

However, there are a number of issues arising from this legislation that could potentially impact workers' compensation. Since the Supreme Court's ruling, these issues have been widely debated in the Work Comp Analysis Group forum on LinkedIn. Among the possible impacts are:

Healthier Workforce

In theory, if more people have access to health care, then we should see a reduction in co-morbid conditions such as obesity and diabetes. While this sounds reasonable, there is no significant evidence to back this up. Studies that compared workers' compensation frequency and severity for workers with and without health insurance did not produce any conclusive findings. From my personal experience, I have seen many claims involving workers who have outstanding group health coverage with the same co-morbidities that are so prevalent in our society. Body Mass Indexes continue to climb, a problem that is not confined to the uninsured population. Simply put: having health insurance does in-and-of-itself make you healthier.

Cost Shifting to Workers' Compensation

Workers' compensation typically reimburses at higher rates than other payment sources (group health and Medicare). Because of this, providers may be tempted to shift conditions to workers' compensation that should otherwise be covered under group health. Additionally, higher payment rates also may result in a greater and expanded utilization of services in the workers' compensation setting versus other resources, like group health. Unfortunately, the existence of universal access to healthcare under the PPACA will not solve the underlying motivation of the reimbursement rates being higher in workers' compensation.

The other concern has to do with the cost to the patient. Workers' compensation has no co-payments and deductibles. With healthcare costs continuing to climb, more companies are increasing the deductibles and co-payments that employees must pay to access the coverage. Everyone seems to agree that PPACA will increase insurance costs, which likely means employees will be asked to bear more of the burden for these costs. This could lead to even more of a push to have conditions covered under workers' compensation instead of group health.

Access to Care

Health reform will significantly increase the total amount of individuals with health insurance coverage which, in turn, should significantly increase the number of people seeking treatment. However, the number of physicians is not going to suddenly increase. Thus, access to care becomes a concern. In countries with universal healthcare, there can be significant delays in obtaining diagnostic tests and elective surgeries. If the surge in patients causes these delays in the United States, it could increase workers' compensation costs due to the continued payment of total disability benefits while awaiting care.

Medicare Set-Asides

Medicare set-asides protect Medicare and ensure that Medicare does not pay for things that should be covered by another source. If everyone has healthcare coverage, is the potential for shifting costs to Medicare eliminated? If that is the case, then does the MSA become unnecessary?

24-Hour Coverage

Previous attempts to provide 24-hour medical coverage merging group health and workers' compensation were unsuccessful because the two models were so vastly different. However, does the presence of mandatory group health insurance change that? Not necessarily. Consider Canada, where a single payer system exists with a distinction drawn between occupational and non-occupational treatment.

The Massachusetts Example

The RAND Corporation recently released a study called The Impact of Health Care Reform on Workers' Compensation Medical Care: Evidence from Massachusetts. It concluded that the healthcare reforms enacted by Massachusetts in 2006 did lower some workers' compensation costs compared to surrounding states. However, the study only applied to hospital care, which accounts for a small portion of the workers' compensation medical expenses. In addition, Massachusetts has one of the lowest workers' compensation fee schedules in the country, which tends to eliminate the cost shifting that is seen in other states.

Time Will Tell

Will PPACA have on impact on workers' compensation? The real answer is that it is just too early to tell. There is potential for the law to both increase and decrease workers' compensation costs. In addition, because the cost for the coverage and administration provided by the legislation are significant, it remains to be seen whether PPACA will remain viable in the long-term in its present form.

As we've written in a previous blog, workers comp seems to be the system of choice for those who want to abuse the system. It offers indemnity payments, settlements (which sometimes are for life), and medical care with no deductibles or a higher rate of pay for doctors to bill. Brokers who want to stay ahead should offer their clients workers compnesation premium recovery.

July 5, 2012 – Business Insurance

The composite rate for commercial property/casualty and professional lines coverage increased an average of 4% in June 2012 compared with the same month a year ago, MarketScout said Thursday.

According to the Dallas-based electronic insurance exchange, prices for commercial property rose 5%, while general liability, commercial auto and workers compensation coverage each rose 4%.

By account size, the biggest increases were concentrated at the bottom with small accounts up to $25,000 and midsize accounts up to $250,000 each seeing increases of 4%. Conversely, jumbo accounts over $1 million saw prices rise 1%.

MarketScout CEO Richard Kerr said rates for workers compensation were indicative of the “bumpy” nature of the market.

“We did record rate moderation for workers compensation accounts from plus 5% in May to plus 4% in June,” Mr. Kerr said in a statement. “Accounts with class codes related to high hazard exposures are being assessed considerable rate increases of plus 7% to plus 15%. Traditional ‘main street’ workers compensation accounts are renewing as expiring to plus 2%.”

Workers compensation audit is the best solution for brokers to renew their clients in this hardening market.

Business Insurance – July 1, 2012

Rising medical costs, insurer profitability affect overall pricing

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, vp 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 vp 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% to 7%, with some 10% increases, particularly in the Midwest, Mr. Jacobsen said. Similar accounts with loss-sensitive programs may see their pricing stay flat, “but those are harder to come by,” he added.

As I have repeatedly blogged in the past, workers compensation insurance carriers are increasingly losing money on every dollar of premium in claim costs. It wouldn't take a genius to figure out that this downward trend in workers compensation insurance profitability will lead to rate increases for employers all across the board. This could mean good news or bad news for brokers. The good news is that since rates and premiums are going up, brokers' commissions are going up. The bad news is that as your most loyal clients watch their premiums rise tremendously, they will go shopping no matter what you tell them; and there most likely will be a broker out there that will have a cheaper quote. Of course you could be a much better broker with much better service, but if you haven't offered your client some sort of savings lately to remind them of all the great work you do for them, they are leaving with the cheaper quote. So, offer your clients wokers compensation premium recovery. There are no out of pocket expenses. Brokers earn first year and renewal commissions. It's a win-win for everyone and you will certainly keep your clients happy!