It’s easy to get swept away in the hype when something’s going well. It’s much harder to take a step back and turn a truly objective eye on your good fortunes, especially if there are cracks everyone seems to be ignoring. This is the poisoned chalice that is the US workers’ compensation insurance market in 2019, according to Shawn Hall, Sr., senior vice president, director of workers’ compensation at Breckenridge Insurance Services.
“For insureds, the market is terrific. For people in the insurance business, it’s much less terrific – to put it lightly,” said Hall. “We’re saving everyone money right now. If a client’s not saving money, there’s something going very poorly at that client’s place of work. But I do think it’s short-sighted. A lot of these rate reductions where we’re seeing double-digit decreases year over year are simply not sustainable.”
Hall likened the situation in workers’ compensation to the commercial auto insurance market, where accounts are currently seeing significant rate increases to make up for what he described as “historically misguided and aggressive pricing.” While such a hardening of rates will not happen overnight for workers’ compensation, the market will eventually follow in the footsteps of commercial auto, according to Hall.
“Part of the reason we can’t sustain this is that workers’ compensation has a very long tail,” Hall added. “Development is the most important part of losses in workers’ compensation. It can take up to four or six years to see what a loss is going to end up as. Closed claims re-open all the time, and new claims hit policies three years after the policies have expired. It’s an evolving beast and any true partner will help insureds plan for this.”
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“This soft market environment has got to be tough for insurance companies,” Hall told Insurance Business. “It’s like watching a herd of buffalo. Every big standard carrier is under pressure to write very aggressively. But it’s a tough world in workers’ compensation right now. Things don’t operate in hyperbole. As much as everyone acts like everything’s fine and this is the new “normal”, as soon as people start to analyze the real numbers, there’s going to be a giant ‘Oh no’ moment.”
Breckenridge Insurance Services writes primary and excess workers’ compensation insurance for self-insureds, while also structuring large deductible plans throughout the US and servicing alternative markets via captive solutions. As the standard, guaranteed-cost markets tackle the challenges of the soft market, the excess market has followed similar, but slightly less pronounced, trends. The swings in the excess market are less drastic than the guaranteed-cost space because rates are determined more by the carriers and the services they’re willing to provide.
“For brokers in this market, my one key piece of advice would be to stay consistent and be an advocate for doing the right thing,” Hall said. “Everything that I do, any success I’ve ever had, or my team has ever had, has been because we get our hands dirty and we make sure our clients are well taken care of. It can be challenging. You might have a middle market account that has had a decent year and is looking at a 15% rate decrease, but then suddenly the standard markets introduce a 30% rate decrease on that file. That’s a challenge because you know the price is not right.”
“There are also scenarios where clients’ loss trends have picked up and you have to figure out a way to offer them a flat renewal. At that point, brokers have to go to their underwriters and ask them to take one on the nose to appease a customer, and maybe they’re not all that pleased about taking that risk on but you’re honest and together, you find a way. For brokers, if you’ve been doing something that has been working, keep that up. Make sure your carriers respect you and keep them well supplied with business. If you keep doing what has worked in the past, any stain will eventually come out in the wash.”