The workers’ compensation industry had a pretty good 2014 in which its combined ratio improved for the third consecutive year, premium grew for the fourth consecutive year, and claim frequency declined about two percent.
But the results in 2014 were not enough to relax officials at the industry’s rating and statistical organization, the National Council on Compensation Insurance (NCCI).
NCCI, which is the official rating and statistical organization for more than 30 states, last week released its annual State of the Line workers compensation market analysis in which the group describes the current state of the industry as “calm now … but turbulence ahead.”
Challenges Ahead
“The most recent results show that 2014 was a good year for the industry—and that follows solid results in 2013,” said NCCI President and CEO Steve Klingel. “It would be great if these results marked the beginnings of a new trend line, but ours is a business that runs in cycles. And despite the current calm conditions, we are anticipating turbulence ahead.”
NCCI says that among the challenges facing the workers’ compensation industry are that claim severity increased slightly more than inflation measures for indemnity and medical costs and a continuing low-interest-rate environment threatens investment results over the long term.
Also, while premium volume continues to increase, construction and manufacturing employment totals remain well below pre-recession levels, which is restraining even higher premium growth rates.
2014 Results
The workers’ compensation calendar year combined ratio for private carriers was 98 in 2014, a four-point decrease from 2013. Total market net written premium increased by approximately 6% to $44.2 billion, driven primarily by an increase in payroll.
Klingel pointed to a number of trends that NCCI finds worrisome.
“From ongoing threats to exclusive remedy, to the risk of benefit increases without appropriate rate adjustments, to the rapidly changing nature of our workforce and workplaces, our industry is being tried on all sides today,” he said. “While I am confident that we will work our way through these challenges, it is important to be realistic about current conditions and to recognize that the current positive results may not last.”
NCCI Chief Actuary Kathy Antonello took a similar approach– refraining from expressing too much joy over the improvements in 2014 because of the dangers ahead.
She welcomed that the combined ratio fell below 100 for the first time since 2006, that there was a second year of above average operating gains, and that 2014 saw a continued decline in claim frequency.
“On the other hand, indemnity and medical severity increases have begun to outpace increases in the average weekly wage and medical consumer price index, low interest rates continue to make investing a challenge, and employment in some sectors of the economy—particularly construction and manufacturing—remains well below pre-recession levels,” Antonello said.
The calendar year combined ratio for private carriers of 98 for 2014 was driven primarily by a decrease in the loss ratio. The calendar year combined ratio has improved 17 points since 2011. The accident year results also showed improvement in 2014, falling four points to a combined ratio of 95.
NCCI’s Highlights
Other market indicators and trends highlighted in NCCI’s 2015 State of the Line report include:
Source: NCCI