When Robert Hartwig Talks, People Listen…

As I was pulling this post together, for good reason, the old EF Hutton commercials we grew up with (dating myself)…

https://www.youtube.com/watch?v=2MXqb1a3Apg

…came to mind. “When E.F. Hutton talks, people listen”…

As EF Hutton was considered (or at least advertised) as “the smartest guy in room” for all things investments; the same holds true for Robert Hartwig @Bob_Hartwig when it comes to insurance economics. He is the guy insurance company CEO’s call to help predict the future and someone I have had the pleasure to meet and see present on a few occasions. You will not see anyone provide more data and direction in a short session that is credible and meaningful.

Robert, a PHD/CPCU, was the former Chief Economist of the Insurance Institute of America and currently serves as the Clinical Associate Professor of Finance, Risk Management & Insurance @ USC’s Darla Moore School of Business. His latest presentation points to some areas that are important to understand and budget for.

https://www.uscriskcenter.com/wp-content/uploads/2020/09/Inland-Marine-UW-Association-American-Institue-of-Marine-Underwriters-9-30-2020.pdf

I have listed some of my key take-aways below and the slide number you can reference for the detail:

Slide 12 – 12.5-25% reduction in workers’ compensation premiums based on rate reductions coupled with drop in exposure basis due to COVID-19. COVID-19 Claims will not be used for rate-making purposes in most states until 2021. All other lines are seeing material drops in written premium due to usage, but rates at the same time are on the rise.

Slide 13 – Range of workers’ compensation losses on a national basis due to presumption is $.2 – $92B … quite a delta and as you will note, and a far greater one than any other line (which are also not yet understood). The range for Business Interruption losses is next with anywhere from $2B – $22B expected. The courts will be the most impactful on where this end result comes in based on policy interpretation. Policy language and intent will be the battlefronts.

Slide 15 – Cost of COVID v comparable pandemics in recent age – the cost and number of countries impacted by COVID-19 versus other pandemics (SIKA, Swine Flu, SARS etc.) is staggering and exponential.

Slide 30 – Presents the investment yield trends for 10-year US Securities which is a foundational “safe” investment for insurance carriers – down 61%. Puts more pressure on operational results which in turn, more pressure on upward pricing.

Slide 31 – 9 of the the top 10 ever point drops on the S and P ever occurred in 2020. The 3’rd largest percentage drop in history occurred on 3/16/20 at -11.98%/-324.9 points. This volatility is of grave concern to the investment strategies of the insurance carrier community. This also puts upward pressure on pricing.

Slide 41 – Business closures will cause debt of $3T for at least a generation to overcome. This is very saddening and a complex issue to make a call on. Be safe and put us in debt for another generation or open up and hope for the best? Question of the century –

Slide 47 – Rates on most lines of insurance (with the exception of Workers’ Compensation) are rising at a rapid pace. Umbrella (20%) and Directors and Officers insurance (16.8%) being hammered the hardest, with Business Interruption (9.7%), Commercial Auto (9.6%) and Employment Practices Liability insurance (9.4%) also expecting hefty increases.

Slide 50 – Business Interruption insurance will be highly litigated going forward, especially on those policies that do not have a pandemic disease exclusion. This and the presumption issue in regard to workers’ compensation are what will cause the greatest uncertainty going forward as to the exposure to the insurance community and how they react as a result the pandemic.

In conclusion, it has been a long cycle of premium reductions. Drop of exposure basis (payrolls, sales, miles travelled etc) may neutralize overall premiums to some extent, but the “as is or lower” rate renewals of the last decade will be very tough to navigate this year. Get out ahead of your renewals, especially on the specialty casualty side. Let us know if we can help.

Report: COVID-19 Accounts for 1-in-9 California Workers’ Comp Claims in 2020

Wow — We are seeing a depletion of capacity/increased costs for health care and other “client-facing” industries.  The why —

“CWCI says that brings the total for the year to 41,861 claims, or 11.2% of all California job injury claims reported for accident year 2020. Those claims included 224 death claims, up from 160 reported as of Aug. 10.”

.005 of all claims in California are a COVID19 fatality year to date.  The unknowns are the reopens, adjusted reserves and longevity of the severe and critical patients.  Still much unknown –

September 28, 2020

The California workers’ compensation COVID-19 claim count continued to grow in August, albeit at a much slower rate than in July, with new data showing that as of Sept. 21, the state had recorded 5,130 COVID-19 claims with August injury dates, according to data compiled by the California Workers’ Compensation Institute.

CWCI says that brings the total for the year to 41,861 claims, or 11.2% of all California job injury claims reported for accident year 2020. Those claims included 224 death claims, up from 160 reported as of Aug. 10.

The latest claim count shows that the number of COVID-19 claims reported to the Division of Workers’ Compensation doubled from May to June, then increased another 16% in July. The numbers reported for August, however, fell sharply, even accounting for the lag in the reporting of COVID-19 claims, according to CWCI.

The CWCI projects there could ultimately be 8,208 COVID-19 claims with August injury dates. Given that the latest tally suggests COVID-19 claim volume may have peaked in July, CWCI is now projecting 48,086 COVID-19 claims with January through August injury dates, which is less than the January through July projection from last month.

CWCI reports that the distribution by industry shows health care workers continue to account for the largest share of California’s COVID-19 claims, filing 38.1% of the claims recorded for the first 8 months of this year, followed by public safety/government workers who accounted for 15.8%. Rounding out the top five industries based on COVID-19 claim volume were retail trade (7.6%), manufacturing (7.6%), and transportation (5.0%). In addition, the percentage of denied COVID-19 claims declined to 28.6% from CWCI’s May report of 35.5%.

Related:

NAPEO and How to Price Your Workers’ Compensation Exposure

While this year’s “Super Bowl” for NAPEO was a bit different, I was very impressed in what was put together under the shadow of the pandemic.  Great content and albeit virtually, great to catch up with folks.

My dear friend and colleague Tom Stypla did a lunch and learn on how to price client companies for workers’ compensation that is linked here…

How to Price Your Workers’ Compensation Exposure Final

Tom has priced more PEO business than anyone I know.  His understanding of PEO workers’ compensation is extremely impactful.

If we can help you with an underwriting strategy or an individual client, let us know!  321.217.7477 is my cell….

Jay Starkman One of the 500 Most Influential Business Leaders in Florida

Very deserved award for Jay and his team behind him.  Not many can build what they did and it is because of focus, execution and the right people.  I have been blessed to be able to watch…

Congrats!

ENGAGE PEO CEO JAY STARKMAN RECOGNIZED ON FLORIDA TREND’S “FLORIDA 500” LIST OF MOST INFLUENTIAL BUSINESS LEADERS

Florida Trend Florida 500

Fort Lauderdale, Fla. – September 18, 2020 – Engage PEO, a professional employer organization providing HR outsourcing solutions to small and mid-sized businesses across the U.S., announced today that the company’s CEO, Jay Starkman, has been recognized in the second edition of Florida Trend’s Florida 500 list as one of the most influential business leaders in the state.

The Florida 500 is a special section created by Florida Trend magazine that highlights the 500 most influential executives in different economic sectors throughout the state of Florida. Selection of the 500 executives recognized on this year’s list was based on a year-long research initiative and spans more than 60 business categories.

“Since founding Engage in 2011, it has always been my priority to provide innovative solutions that help clients navigate the ever-evolving workplace environment; that mission has never been more relevant than it is today,” said Jay Starkman, CEO of Engage PEO. “To be recognized on the Florida 500 list during such a trying time – alongside some of the most inspiring leaders in the state – is a true honor, and one that I could not have achieved without my dedicated employees, valued partners, and long-time clients.”

The complete list of the recipients of the Florida 500 can be found in the September special issue of Florida Trend magazine. More information can be found here.

About Engage PEO

Engage PEO delivers comprehensive HR solutions to small and mid-sized businesses nationwide, sharpening their competitive advantage. Comprised of the industry’s most respected veteran professional employer organization executives, certified HR professionals and attorneys, Engage PEO provides hands-on, expert HR services and counsel to help clients minimize cost and maximize efficiency for stronger business performance.  The company’s superior service offering includes a full range of health and workers’ compensation insurance products, payroll technology and tax administration, risk management services and advanced technology as part of an extensive suite of HR services. Engage PEO was recently awarded the designation of Certified Professional Employer Organization (CPEO) by the Internal Revenue Service (IRS), ensuring greater benefits for small and mid-sized businesses such as tax advantages and financial protections. Engage PEO is also accredited by the Employer Services Assurance Corporation. Engage PEO was named to Inc. magazine’s list of the 5000 fastest growing companies every year since 2016. For more information on Engage PEO visit www.engagepeo.com. The IRS does not endorse any particular certified professional employer organization. For more information on certified professional employer organizations go towww.IRS.gov.

Elon Takes on the Insurance Marketplace

…sorry have to laugh, “you guys (actuaries) are good at math”. um, yeah –

That part he got right.  Very good indeed.

While I have a tremendous amount of respect for Elon and his accomplishments, this seems to be a bit out of his usual sweet spot.

Perhaps “Midas” will strike again, but my personal opinion is he got a bad renewal and now wants to go Orwellian.  All about a revolution in an industry that is perilously behind the times, but this seems not thought out –

Are we now to be graded individually against our peers?  Do we wear letters or colors based on performance.  A slippery slope —

Tesla Invites Actuaries to Help It Create a ‘Revolutionary’ Insurance Company

By | July 24, 2020

Tesla, which has been testing an insurance product for its drivers in California, is preparing to build an insurer, one CEO Elon Musk says will be “revolutionary.” And he’s inviting actuaries to join his cause.

“I would love to have some high energy actuaries, especially. I have great respect for the actuarial profession. You guys are great at math. Please join Tesla, especially if you want to change things and you’re annoyed by how slow the industry is. This is the place to be According to Zachary Kirkhorn, Tesla’s chief financial officer, the company wants to harness the data from its telematics on its cars and drivers to build the new insurance operation beyond California.

“Where we want to get to with Tesla Insurance is to be able to use the data that’s captured in the car, in the driving profile of the person in the car, to be able to assess correlations and probabilities of crash and be able then to assess a premium on a monthly basis for that customer,” he said.

He said Tesla is nearly finished with testing its California telematics product and hopes to be filing that in several more states by the end of the year with the goal of going nationwide.

Tesla Insurance Will Use Driver Video, GPS Data Subject to States’ Approval

Musk said that accuracy of information is “at the heart of being competitive” with insurance. The choice is between assessing drivers “looking in the rear-view mirror” or assessing them individually, “looking ahead with smart projections” and being able to inform them what actions they can take to reduce their insurance.

“It’s like… if you want to pay more for insurance, you can. But if you want to pay less, then please don’t drive so crazy,” Musk said, adding, “Then people can make a choice.”

He said understanding the insurance expense, such as $15,000 to fix a fender, can actually be helpful to the carmaker, allowing it to adjust the design of its cars to how repairs are done and lessen the cost.

Musk has long maintained that car insurance rates should fall as driver-assist and self-driving technology become standard.

Top photo: Elon Musk, Tesla Chairman, Product Architect and CEO. (AP Photo/Paul Sancya)

The NCCI, Presumption and COVID19

The National Council of Compensation Insurance (“NCCI”) continues to further refine its cost estimates of COVID19 for the 38 states that it oversees for the purposes of rate and rule making for workers’ compensation.  The most notable states not included in this study are California, New York and New Jersey which collectively make up about 40% of the workers’ compensation premiums countrywide.

The term “presumption of compensability” speaks to whether a COVID19 case is deemed compensable solely by the nature of the afflicted’s joe duties, scope and where work is performed.  This is different in every state with new bills and laws being drafted and legislated every day.

The preemption legislation generally falls into three buckets:

  • Bills that establish compensability presumptions for first responders (fire, police, ambulance) and/or certain healthcare workers (nursing homes, hospitals, home health etc)
  • Bills that establish compensability presumptions for essential or frontline workers.  This expands presumption into most all client-facing roles still necessary (grocery, pharmacist, mass transit, TSA, meat-packing, banking etc.)
  • Bills that establish compensability presumptions for all employees in the state

Needless to say, understanding the expected costs to the workers’ compensation system of any given state and the appropriate risk load to charge as a result starts with who will and will not “automatically” be covered and thus drive cost.  As you will note below, there is a lot of activity in regard to this issue across the country.

You can access NCCI’s state-by-state compensability tracker here.

Additionally, the NCCI has built a free on-line COVID19 “Hypothetical Scenarios Tool” that really gets into the granular on expectation of costs by type of worker and symptom group as well as the expected risk load as a result thereof.  Here is where the NCCI’s middle of the road projection is as of their last study in April with the assumptions of all NCCI states and the total workforce presumed to have contracted COVID19 in an occupational setting.  The scenario assumptions with slide bars below can be adjusted manually, but these are the “middle ion the road” defaults.


Note in this scenario of the total workplace presumed to being exposed to COVID19 in all NCCI states, the expected additional risk load is +85%.

Where I found this model to be even more interesting is on a state by state basis.  Using same “total workforce” but now selecting just Florida.

A 69% v 85% risk load and a fatality claim average being $121,118 v $341,111.  Fatalities the most important risk and cost driver with “critical claims” coming in #2.  Now if we do the same for Texas…

The risk load almost triples the national average at 236% fueled by the cost of a fatality more than double the national average, or $723,912.

This is a very powerful tool that shows all of the variables in play in the forecasting of expected costs in NCCI states due to COVID19.  As this continues to be refined we will update you.

Have a great weekend and stay safe.

California Workers’ Compensation Impact Projections – COVID19

As our clients continue to grow their businesses during the COVID19 pandemic, it has never become more important to select the right client company exposures to take risk on and those to lay off on guaranteed cost policies.  Having an underwriting strategy for risk selection and understanding of proper pricing as a result of COVID19 is an issue that needs to be focused on in this dynamic environment.

As with any projection, as time goes by, the future is understood with greater certainty.  As I continue to monitor the “risk load” attributable to COVID19 on a State by State basis, it made me think of one of my literary heroes and a famous quote of his:

“A habit of basing convictions upon evidence, and of giving to them only that degree or certainty which the evidence warrants, would, if it became general, cure most of the ills from which the world suffers.”  – Bertrand Russell
Why?  Because we are still dealing with “evidence” on COVID19 that is uncertain.   How much we can warrant forecasted outcomes as a result is therefore uncertain.  Besides the fact we are dealing with a 1 in a 100 year pandemic with no script to work off from the past, the models forecasting number of events and costs are built off of social distancing and staying at home; these variables being complicated by the reopening of States on the rise and social demonstrations triggered by the Floyd case/police brutality.
That said, based on the evidence in California at present, the middle of the road estimate is the addition of $1.2B of system costs to the current system costs of $18.3B, or 7%.
The low end is 3.3% and high end 11%.  These costs emanate from the mid-range loss estimate of 31,100 COVID19 claims.  Please note that this projection is based off the Governor’s order of presumption only lasting through July 1, 2020.  Of these expected claims, it is anticipated the costs will be as follows:
Claim Type               %               Expected Costs per Claim
Mild                           82                          $2,100
Severe                      10                           $74,800
Critical                        3                           $191,100
Death                         5                            $280,500
While I found this projection on the surface to be light, Mr. Stypla and I than contemplated the facts that California was one of the first to close and has been very strict in “stay at home” protocols.  As a result, their fatalities per 100,000 people are far less than other populous states:
Cases/ Fatalities/ 100,000
California – 347/12/100,000
New York – 1,951/157/100,000
Texas – 270/6/100,000
Florida – 307/13/100,000
New Jersey – 1,855/139/100,000
Illinois – 1,020/48/100,000
Michigan – 651/60/100,000
Wisconsin – 366/11/100,000
Ohio – 335/21/100,000
Mass. – 1,507/108/100,000
As you can see, there is a wide range of events by State with California being on the lower end of the spectrum.  So the take away is based on evidence today, California appears to be outperforming against initial forecasts and the country as a whole.  Hopefully the numbers will stand, but to belabor it, these are very fluid forecasts based on evidence available as of today.

Workers’ Compensation Super Bowl

The National Council of Compensation Insurnce (“NCCI”) hosts their Annual Issues Symposium this afternoon on a shortened and virtual basis.  There is no other conference that influences what happens with workers’ compensation reserving and pricing then this one.

All major carriers and their respective mathematical prophets will be on the line to measure profitability and the components thereof for the last year and historic.  Even more importantly this year, the prediction of go-forward profitability and pricing guidance/trend.

https://www.ncci.com/Articles/Documents/II_AIS2020-Agenda.pdf

Mr. Donnell starts off at 1:00, State of the Line at 1:15 and Bob Hartwig does a COVID presentation 2-3.  Very much condensed than usual and for the first time that I know of… its free!

We will be summarizing our interpretations of these presentations later in the day but please check out if you have the time.  Hartwig, especially, is a tremendous speaker –

The links below to join…

Plan to join us for NCCI’s Annual Issues Symposium—AIS Virtual<https://www.ncci.com/Articles/Pages/AIS_LiveStream_UserCapture.aspx?aisinvitelinkclick=yes>, May 12, 2020, 1:00 p.m. ET.

AIS Virtual is the premier workers compensation event offering actionable intelligence around the industry’s most relevant issues.

These helpful tips will get you ready:

 

  • For optimal viewing, use Chrome or Firefox and log in early to test your system’s livestreaming capability.

 

  • Log in will be available 15 minutes prior to our start time, and you’ll be able to enjoy our AIS Virtual preshow content as we count down to our 1:00 p.m. ET kickoff.

 

Following the main program, view our interactive Meet the Experts session, and access additional insights via our AIS Virtual Highlights Report on ncci.com.

For more information, and the full AIS Virtual agenda<https://www.ncci.com/Articles/Documents/II_AIS2020-Agenda.pdf>, visit ncci.com<https://www.ncci.com/Articles/Pages/II_AIS2020-Registration.aspx>.