While there are many positive developments and encouraging trends for workers’ compensation insurance buyers and sellers to celebrate, there are also numerous threats on the near horizon that could undermine efforts to keep injury frequency and the cost of risk under control, one leading executive warns.
Neal S. Wolin, president and chief operating officer for property and casualty operations at The Hartford Financial Services Group, will share his take on the state of the market during his keynote address this week at the annual Workers’ Compensation Educational Conference in Orlando.
But before he kicked off the WCEC’s National Trends program—put together each year by National Underwriter—with his speech, he sat down for a Q&A about the most pressing issues confronting the workers’ comp market.
Q:
How do you characterize the state of the workers' comp market today?
Overall, I'd say that the workers' comp market remains stable—for the time being. We've seen very strong profitability over the past few years.
Frequency has continued to decline, and while medical and indemnity costs have continued to grow, the growth rates appear at least to have leveled off—helped perhaps by some of the reforms that went into effect in recent years in some states.
That said, there are certainly reasons to believe we’ll face more challenging times ahead. Prices are softening, and we anticipate another year of rate decreases in key states. Factoring in the effects of the economic downturn, the industry will probably see negative premium growth again in 2008.
We're hopeful premium will flatten out and begin to rise in 2009, but whether that happens could depend on the depth of the downturn. Considering the importance of investment returns to workers' comp profitability, the current market turmoil is cause for concern, as well.
So I'd say I'm cautiously—very cautiously—optimistic. But, especially given the long-tail nature of the workers' comp line, it's absolutely critical that carriers remain disciplined over the coming years.
Q: W
hat are the positive and negative trends in frequency
and
severity we should
watch
?
The frequency trends remain very good. Lost-time claims frequency has continued to drop steadily. Interestingly, those states that enacted dramatic reforms, like California, have seen unprecedented—and also unanticipated—decreases in frequency.
Severity increases have been relatively modest over the past several years, compared to the double-digit increases of the late 1990s and early 2000s. Year-over-year indemnity severity increases have held in the mid-single-digits, while medical severity increases have been in the mid-to-high-single-digits.