Workers’ Comp Drug Spend Continues to Drop, According to CompPharma’s 14th Annual Survey of Prescription Drug Management

MAGGIE VALLEY, N.C.–(BUSINESS WIRE)–CompPharma’s 14th Annual Survey of Prescription Drug Management in Workers’ Compensation showed an average 11 percent reduction in payers’ pharmacy spend, driven by a 13.3 percent reduction in opioid cost. The survey analyzed the 2016 pharmacy cost data of 23 workers’ compensation insurance carriers, third-party administrators, self-insured employers, and state funds.

Working with their pharmacy benefit managers, payers cut one of every six dollars in opioid spend, which the report called a “truly remarkable result.” In contrast, across all payer types, pain medication use declined by a scant 1 percent (Quintiles IMS).

“Clearly the efforts of workers’ comp regulators, payers, desk-level staff, PBMs and prescribers have paid off,” said Joseph Paduda, president of CompPharma, LLC. “While we have much left to do, this represents a dramatic improvement in the lives of thousands of patients.”

Payers are far from complacent, with all respondents expressing grave concerns about the risk of opioid addiction or dependency. Most are continuing to refine and improve programs to help patients address pain while minimizing use of opioids, relying on physician and/or pharmacist review of claims, early identification of potentially risky prescribing, and increased use of drug testing.

In contrast, compound drug utilization and spend has dropped dramatically and is no longer of great concern to payers.

A complimentary copy of the 2016 survey can be downloaded from

NAPEO Forms Cybersecurity Task Force

As an fyi, NAPEO has formed  a Cybersecurity Task Force to better understand the exposures of PEO and how to mitigate them.  A very timely and critical task force that I am very proud to be a part of – This is by far the most misunderstood exposure to PEO today.

“NAPEO recognizes the critical business and compliance risks faced by our members concerning cybersecurity. Although many member resources such as PEO Insider and various conferences have featured helpful information and programs for members on this topic, NAPEO recognized more is needed and formed the NAPEO Cybersecurity Task Force to help fill that gap. The Cybersecurity Task Force is comprised of a cross section of professionals with expertise in insurance, law, technology and the business environment of PEOs. Its primary mission is develop a set of best practices which NAPEO members could use to strengthen their compliance efforts and minimize their legal and business risks. The Task Force’s first step will be to survey members to gain a deeper insight into the cybersecurity concerns and exposures of members, which will be used to help shape the best practices the task force will produce. For more information, please contact Farrah Fielder.”

Will master Cyber policies be the next EPLI product for PEOs?

With two carriers now offering master PEO cyber programs, the question here is PEO’s be able to sell these as part of their overall package?

A recent 2017 RIMS survey has shown that 83 percent of organizations have a standalone cyber insurance policy (up 3 percent from 2016) and only 14 percent are utilizing the cyber coverage offered in their other insurance policies.

One reason for this statistic could be that Risk Managers want specific endorsements and add-on coverages that apply directly to their industry or are a result of a problem they’ve faced in the past.  This has been a crucial part of individual cyber policies over the past few years as the carriers try to keep up with the quickly evolving cyber space.

With the above in mind, it may be difficult for PEO’s to make this as part of their basic package as EPLI has become over the past decade.

I would like to note the PEO cyber program has one crucial endorsement, Social Engineering, that can be added on for an individual client company.  This has to be individually underwritten for each client company adding another layer for the PEO sales rep to cross-sell.

If you work in the PEO industry, please comment below with your thoughts of PEO’s offering cyber coverage to client companies. For more statistics from the RIMS survey please visit:


-David Campbell

Risk Consultant at Libertate Insurance

The 72’nd Annual Workers’ Compensation Educational Conference – Orlando

Another year and another convergence of the who’s who in the field of workers’ compensation at the Marriott World Center in Orlando this week.  Known as the largest insurance conference in the country, the Workers’ Compensation Institute brings together “centers of influence” in law, medicine, claims adjusting, underwriting, brokerage, risk-bearing, managed care, regulation, legislation, staffing and of course coemployment.

Dating back over a decade, the Workers’ Compensation Institute and specifically Jim McConnaughhay and Steve Rissman have granted the PEO community a one day educational track.  Shortly thereafter, FAPEO and NAPEO threw their influence and sponsorship behind it.  Special thanks to the WCI, FAPEO and NAPEO for making this a success and bringing positive exposure to the PEO industry.

I am proud to participate on a panel Tuesday morning at 9:00 am with Andy Olwert (Next Level), Deb Hetzer (PEMCO), Phil Herron (Continuum HR) and Robert Barrett (Rissman, Barrett, Hurt, Donahue, McLain & Manganese’s, PA) titled “Accountability in the PEO Industry – Posting Wins for PEO’s and Their Claims Teams”.  More information on this data-driven session can be found on the WCI 360 site here:

Hope to see you Thursday morning and look forward to catching up with lots of old friends!

Why Commercial Insurers Need To Embrace External Data To Price Emerging Risks

See the very interesting and timely article below from leading analytics data provider to the insurance industry, Cytora.  Arguably, there is room for improvement when it comes to the ability to accurately price a risk.  Why external data is not used more often is surprising and, based on the below, a tactic that insurers will hopefully leverage more in the very near future.


Back to the future

Twenty years ago around 75% of the value of S&P 500 companies were comprised of physical assets, with around 25% in intangibles, such as intellectual property and brand value. Fast forward to today, and that split has more than reversed[i]. Corporates operating in today’s world are increasingly concerned about new and more esoteric risks than they were in the past.

Yet insurance companies – which traditionally focus on historical claims data to price and assess commercial risks – have struggled to meet the demand for a new generation of risk products, including cyber, reputation and non-damage business interruption.

The key barrier to offering meaningful limits and affordable pricing for products such as cyber is a lack of historical data. However, insurers are increasingly recognising that the past is no longer necessarily an accurate proxy for future claims experience. And more importantly, that external data can be used to understand, price and manage both traditional and emerging risks.

Slow to innovate

But is the change happening quickly enough? According to research conducted by the Association of Risk and Insurance Managers (Airmic)[ii]with AXA Corporate Solutions, Chubb and JLT Specialty ahead of the association’s annual conference, the traditional insurance model is not fit for emerging risks.

It found that disruptive innovation driven by technological advances, globalisation and evolving corporate demands are threatening conventional insurance models. Traditional insurance products – which are underwritten using past claims data as a proxy for future claims experience – remain too geared towards protecting physical assets.

With a dearth of coverages tailored to intangible risks available in the commercial insurance market, organisations are forced to self-insure, putting such risks through their captive insurers or simply keeping them on balance sheet. The Airmic survey revealed that the vast majority of risk managers plan to manage their emerging risks in-house either by reducing or retaining them.

“The insurance industry recognises that traditional insurance is losing relevance in face of today’s more complex and harder-to-define risks,” said Julia Graham, Airmic’s deputy CEO and technical director. “And yet our members want support in understanding and dealing with these modern risks – both in terms of innovative products, but also in terms of broader support.”

It is clear that a seismic shift in approach to underwriting is required. It is an approach that consigns the over-reliance on claims data to the dustbin of history and seeks to leverage readily available, external data to provide more relevant and accurately-priced products.

Such an approach has so far gained most traction within personal lines. In retail motor for instance, the rise of aggregator websites and access to external rating factors from telematics devices and industry fraud and DVLA databases, allows carriers and brokers to offer their customers differentiated pricing, in real-time, without the need for excessive form filling.

A new underwriting approach

Commercial insurers are beginning to catch up, albeit slowly. Certainly, the appetite is there. According to 93% of insurance CEOs surveyed by PwC in 2015[iii], data mining and analysis is the most strategically important digital technology for their business.

There is recognition that external data can enable underwriters to improve risk assessments and forecast potential losses, without the need for actuarial analysis based on historical claims performance or the need for excessive client input.

Instead, external data readily available on company websites, social media, publicly-available government reports and via news articles are among a range of sources with which insurance companies can isolate and utilise risk information for underwriting purposes.

For instance, close to 100% of all product recalls and contamination incidents are reported online, offering a valuable tool for product liability underwriters. Moreover, with an expanded pool of rating factors policies should become more dynamic, for instance, reflecting changes in risk that happen on a seasonal basis.

Such a shift in approach to risk selection and pricing is necessary in a rapidly-changing commercial risk landscape. “There is now data to assess risks that were previously uninsurable,” said Gregg Holtmeier, executive vice president at JLT Re. “Another benefit is that a more granular and scientific evaluation should ultimately lead to lower premiums.”


On a separate but related note, if you happen to be in Naples this week for Florida RIMS be sure and catch Libertate Insurance CEO, Paul Hughes, speak about the impact of data and insurance.  He loves to talk data!  Paul takes the stage at 1:30p and will be entertaining, if nothing else!  No pressure Paul.






Insurance Nerd Day 2017!

…was yesterday and we did not celebrate it here on the Compass where we take that title as a compliment!

July 18 is Insurance Nerd Day

25% of insurance professionals will reach retirement age by 2018 and only 5% of college graduates are very interested in pursuing a career in the insurance industry.  That will create huge opportunity for newly-minted insurance nerds of all ages in the near future.  Data management and predictive modeling are going to make this industry far sexier in the years to come…


California Adopts 16.5% Workers’ Compensation Rate Drop for 7.1

From the Insurance Journal…

California chose to adopt the Workers’ Compensation Insurance Rating Bureau’s (“WCIRB”) recommendation of a -16.5% drop in pure premium rates.  It should be noted that these rates are advisory only and so what to watch next is who adopts the pricing decrease and who does not.  With over 30% of all US workers’ compensation premiums generated out of California, this will provide an intriguing battleground and opportunity for those carriers that buy into WCIRB’s numbers in regard to lower medical loss development, decreasing indemnity claim frequency, and lower than projected loss adjustment expenses.

– Paul R. Hughes


2016 Workers’ Compensation Combined Ratio is a 94 per NCCI

It has been a busy month of conventions… NAPEO Legal and Legislative, RIMS and last week the NCCI.  On the ground at the PACE conference in New Orleans, a look back at the NCCI AIS.

The National Council of Compensation Insurance (“NCCI”) Annual Issues Symposium is the preeminent conference for understanding all things workers’ compensation.  Industry experts in the carrier, reinsurance and brokerage communities converge in Orlando every year in May to better understand the meaningful trends in the workers’ compensation line of insurance. The most meaningful number of this year’s event was 94… the lowest combined ratio of any other year since 1990 with the exception of 2006 (93).  It should also be noted that this is a 6 point drop from the 100 of last year and represents one of few years <100.

Based on typical patterns, this is now where capital enters the market… which was illuminated when the NCCI literally sold out of tickets.

With NAPEO’s Legal and Legislative Conference two weeks ago, the NCCI conference last week and PACE in New Orleans this week… it has been a high school reunion of sort – seeing good friends, telling old stories and commiserating on how to make the PEO industry the optimal platform for American business.  Health insurance maybe in the news every day but workers’ compensation is the line of business that PEO’s must have.

The origination of the PEO Compass was to provide an executive summary of all things workers’ compensation and how they impact all things PEO.  The NCCI is a huge driver of this nationwide and sets rates and rules in 37 states.  The document attached is a must read for those like me that are workers’ compensation and data geeks.

For those that are not (or would prefer not going through 57 slides), the highlights below:

  • The total P/C industry’s 2016 combined ratio (101%) represents a three-point increase versus that for 2015.
  • Combined ratios increased in all lines of business except workers compensation (slide 4)
  • Premium for the NCCI-serviced Residual Market Pools has remained stable over the last four policy years, at approximately $1.1 billion. (slide 12)
  • Between 2015 and 2016, countrywide private carrier direct written premium grew +2.4% (slide 15)
  • The percentage change in payroll (+4.5%) is approximately equal to the percentage change in the average wage (+2.5%) plus the percentage change in employment (+1.9%).  Employment grew at an above-average rate for the Professional and Business Services; Education and Health Services; Construction; and Leisure and Hospitality sectors.  Employment in the Manufacturing sector was flat, while the All Other sector posted a decrease primarily due to declines in Natural Resources and Mining employment (slide 17)
  • NCCI workers’ compensation filings with effective dates in 2017 averaged –6.7%… California and New York are already seeking approval for rate decreases which are not even part of this data set (slide 18)
  • In 2013, more than 70% of respondents saw an increase in premium at renewal, but by the fourth quarter of 2016, 62% reported seeing a decrease in premium at renewal (slide 23)
  • The workers compensation 2016 calendar year combined ratio for private carriers was 94%. This is the second consecutive year that the industry has posted a six-point underwriting gain. Consecutive combined ratios at this level have not been seen in at least the last 30 years (slide 24)

What this means is that workers’ compensation has become a very sexy line of insurance risk-bearers.  With favorable improvements in operating and investment performance, the median expected rate of return is +20%.  Again, it is therefore no surprise that this years NCCI AIS conference was sold out months prior to the event.

For those that happen to be in New Orleans this week for the annual PACE conference, let’s meet up and strategize in person about the great opportunities ahead for the industry.

– Paul R. Hughes

c: 321.217.7477