An Oasis in the Desert

Desert Oasis

The workers’ comp industry remains healthy thanks to a robust job market and sharp underwriting. But headwinds loom on the horizon.

The first question they ask is almost always the same.

“How much comp do you have?” said Jessica Cullen, managing director of Arthur J. Gallagher & Co.’s casualty practice, referring to her initial query to clients when sending in a submission for a tougher auto or general liability risk.

“That will make the account more marketable and more attractive to the underwriting community.”

The workers’ compensation line has been that healthy across the national landscape.

Underwriting results have been sharper than any time in 80 years. There’s plenty of competition in the majority of markets.

And most importantly, it remains a profitable business thanks to a robust job market and declining frequency of claims and underlying loss ratios.

Insurers have recorded an “unprecedented” seven straight years of positive financial performance, said Bill Donnell, CEO of the National Council on Compensation Insurance, in May.

The largest commercial insurance market is virtually the only line within property/casualty where rates are not rising. In fact, California, Florida, Oklahoma and Vermont are among the states that recently lowered rates. But still the space remains profitable.

“The workers’ comp line is experiencing an unprecedented run of good fortune over the last at least five years,” said Mark Morneau, senior vice president and general manager, national insurance—East division at Liberty Mutual Insurance. “And it’s really been driven by declining frequency of claims in the industry and generally muted severity.

“Medical inflation still impacts the workers’ comp line, but frequency has outpaced that severity. So it’s been a really strong run, and quite frankly, the line has bolstered the health of the primary P&C market.”

Some wonder how long that run will last.

Headwinds are building on the horizon, such as those falling state rates, a weakening United States economy and rising loss frequency in some pockets.

Full story here