Workers compensation has been a profit juggernaut for the property/casualty insurance industry over the past several years.

Executive Summary

The majority of excess or unnecessary opioid prescribing appears to have been wrung from the workers compensation system, analysts at Assured Research have found, based on an analysis of data from a series of reports from the Workers Compensation Research Institute and industry loss trends. Here, Assured Research President William Wilt reveals the impact that changing prescribing patterns has had on workers comp ratemaking and loss reserve adequacy, advising actuaries to carefully watch prescribing patterns going forward in order to avoid mismatches between their historical experience period and current practices.

A version of this article was originally published in the October Assured Briefing for subscribers to Assured Research reports. The article is being republished by Carrier Management with permission from the author.

Underwriting profits from the workers comp line have accounted for the entirety of the industry’s profits from underwriting over the past decade. If those profits begin to dry up, many companies will feel it.

There are several worrying trends that could conspire to shrink workers comp underwriting margins going forward. Among them: a rising medical trend line; a narrowing gap between wage and medical inflation; and reserve redundancies (at nearly 15 percent of workers comp premiums in recent years) that will decline if the medical trend line continues to rise. We reviewed these possibilities in our September Assured Briefing.

Here, we turn attention to another trend that could push workers comp underwriting results in the wrong direction: changes in prescribing patterns for opioids in workers comp claims. A rapid deceleration in the frequency of opioid prescriptions during the years 2010-2018, and a similar sharp drop in the dosage intensity of opioid prescriptions during those years, is leveling off. While not the entire story, there’s little doubt that the precipitous decline in opioid prescriptions had a positive impact on workers comp results in recent years. Carriers and their actuaries need to be careful to analyze any stabilization—or reversal—of this key driver of past improvements in workers comp results as they develop loss cost projections into the future.

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