The 2022 Expected Workers’ Compensation Combined Ratio is…
The 2022 Expected Workers’ Compensation Combined Ratio is…
An 84.
To put this in perspective, the combined ratio for the overall property and casualty insurance industry came in at a 102, meaning that for every $1 of premiums collected, an average of $1.02 will be paid out by the insurance carriers. The 16 points of underwriting margin in workers’ compensation coupled with increased investment returns based on the uptick an interest rates and unusually high wage inflation will render the national marketplace soft as a pillow.
P&C Industry Net Written Premium Growth—2019 to 2022 - Private Carriers
Every year, the most talented workers’ compensation professionals in the country converge in Orlando for the National Council on Compensation Insurance (“NCCI”) Annual Issues Symposium. Rich in analytic data, the NCCI drills into the cost drivers, macro-economic environment and social issues that impact this statutory line of insurance.
Some highlights from friend and internal actuarial guru Tom Stypla:
Workers’ compensation premium increased 11% in 2022, returning to approximately the same level as four years ago, 2019.
The calendar year combined ratio for workers compensation is 84%, a drop of 3 points from last year’s 87, a sign of underwriting profitability for the system.
Workers compensation’s accident year combined ratio is 97% with prior years continuing to experience downward reserve development.
The workers compensation reserve redundancy grew to $17 billion.
Lost-time claim frequency returned to its 20-year trend, declining 4% in the past year.
NCCI reported a notable rise in severity for 2022 with medical claim severity increasing about 5% and indemnity claim severity rising about 6% year over year. The longer-term perspective indicates this is a manageable rise.
Wage inflation continues to outpace severity
A few other facts to consider from NCCI Executive Director and Actuary Dan Benzshawel:
“Frequency is one of the two main dynamics influencing costs, the other being wage growth. Frequency remains the main cost driver in the workers’ compensation system, and frequency has been decreasing as wages have gone up.
The average medical lost time claim cost $26,800 last year, a 5% increase compared to $25,500 in 2021. Average indemnity claim severity increased 6% to $26,400 last year, compared to $24,900 in 2021.
However, over the last 20 years, Benzshawel said, wages increased by about 90% while severity increased about 60%, which also puts downward pressure on costs.
What does all this mean to the insurance buyer? Expect more capital poured into workers’ compensation helping to continue to fuel severe pricing competition. While large deductible programs always provide the best vehicle to maximize returns, the continued freefall in rates against collateralization required in loss sensitive programs will be worth watching closely. Is it better to make a guaranteed 15-20% return using first dollar vehicles or worth rolling the dice with the ability to make twice as much, or lose the same?
Click here for the full presentation or visit https://www.ncci.com/Articles/Documents/AIS2023-SOTL-Presentation.pdf
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