The workers’ compensation market is steadily improving and continues to transform, the National Council on Compensation Insurance found in its annual “State of the Line” workers’ compensation market analysis.
The rating and data collection bureau found much to celebrate in the industry’s performance in 2015, including a combined ratio for private carriers of 94% and an increase in total market net written premium of 3% to $45.5 billion.
This was driven primarily by an increase in payroll, NCCI found.
"Overall, 2015 was another positive year for the workers compensation industry,” said NCCI Chief Actuary Kathy Antonello. “The combined ratio improved, claim frequency continued to decline, and operating results were strong. While the 2015 results are encouraging, we hope for continued diligence of workers compensation system stakeholders to ensure a strong and competitive system."
Other market indicators and trends highlighted in NCCI’s 2016
State of the Line report include:
- The overall reserve position for private carriers improved in 2015. NCCI estimates the year-end 2015 reserve position to be a $7 billion deficiency—down from $10 billion in 2014. Estimated reserve redundancy in Accident Year 2015 accounts for much of this reduction.
- Average lost-time claim frequency across NCCI states declined by 3% in 2015.
- In NCCI states, the preliminary 2015 accident year average indemnity cost per lost-time claim increased by 1% relative to the corresponding 2014 value. For medical, the preliminary average cost per lost-time claim decreased by 1% relative to that observed in 2014.
- The workers’ compensation residual market pool premium volume remained flat between 2014 and 2015, and the average residual market share remained stable at 8%. The latest NCCI data shows that total residual market premium declined in the first quarter of 2016 compared with the first quarter of 2015.
Even so, the workers’ compensation industry faces challenges.
“The positive industry results we reported today are welcome news for industry stakeholders,” NCCI President and CEO Bill Donnell said. “In addition to the positive financial results, though, we see a significant transformation under way.”
Donnell stressed the importance of new monitoring technology and expanded automation, as well as a change in how employees work.
“The regulatory environment is transforming with new participants and shifting agendas,” he added. “In addition, the frequency and potential severity of system challenges are creating levels of uncertainty as we move forward this year.”
Specifically, the NCCI is watching:
- While the change in overall medical severity has lessened in recent years, prescription drug costs per active claim continued to increase.
- The extended low-interest-rate environment threatens investment results over the long term.
- Ongoing challenges to the industry’s renowned “Grand Bargain” could impact future benefit levels and put upward pressure on loss costs
The NCCI provides the “State of the Line” report on an annual basis after gathering data, analyzing trends and preparing insurance rate and loss cost recommendations.
