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As we pass the halfway point of 2014, the National Council on Compensation Å˽ðÁ«´«Ã½Ó³»­ (NCCI) is relatively optimistic about the outlook for the workers’ compensation market in America.

Industry costs remain largely contained. There is a reasonable expectation of some level of profit. The system in most states (but not all) is operating efficiently. In short, the market is operating as it should, in a balanced fashion.

On a cautionary note, our optimism does not mean that we are unaware of the uncertainties that lay ahead of us. Issues such as terrorism risk insurance (TRIA) renewal, rising health care costs, pending state judicial decisions and the Affordable Care Act all may impact workers’ comp in ways we can’t yet foresee.

As history has shown, good results can unravel fast and there are too many existing uncertainties to accurately predict the future health of this line. For now, however, results continue to improve.

Overall Positive Results

NCCI’s 2014 State of the Line report indicates that the workers’ compensation calendar combined ratio was 101 in 2013, a seven-point decrease from 2012 and a 14-point decline since 2011.

Other positive indicators include:

• Accident year results showed notable improvement in 2013, falling eight points to a combined ratio of 99.
• Lost-time claim frequency maintained a path of decline in 2013, down 2 percent, on average, in NCCI states.
• For the fourth consecutive year, the ratio of investment gains on insurance transactions to premium remained surprisingly robust given the sustained low interest rate environment.
• This investment gain outcome, combined with underwriting results, produced the highest workers’ compensation pretax operating gain since before the recession.
• In NCCI states, the average indemnity cost per lost-time claim increased by a modest 2 percent, following increases of about 1 percent in both 2011 and 2012. The average medical cost per lost-time claim increased by 3 percent.
• Premium grew for the third consecutive year, driven primarily by an increase in carrier estimated payroll and a decrease in carrier discounting.
• NCCI’s estimate of the industry’s net reserve deficiency declined from $13 billion as of December 31, 2012 to $11billion as of December 31, 2013.

Yet even with these improvements, workers’ compensation is faced with some ongoing challenges:

• Slow growth in employment, particularly in the manufacturing and construction industries, is impeding additional premium growth.
• The rapidly approaching expiration of TRIA introduces uncertainty regarding capacity and the possible impact on markets of last resort.
• The effect of the ACA on workers’ comp also continues to cause uncertainty.
• A continuing low-interest-rate environment threatens investment results from the industry’s bond portfolio over the long term.

Workers’ compensation participants are finally starting to see real cause for optimism with the 2013 results. Going forward, however, challenges remain, and there are many reasons to be cautious with regard to the long-term outlook for the industry.

While we remain encouraged by the latest results, NCCI will continue to monitor and report on known and unexpected market challenges. As always, we invite you to visit ncci.com to view our latest reports on industry results and trends.

Klingel is president and CEO of the National Council on Compensation Å˽ðÁ«´«Ã½Ó³»­ (NCCI).

Topics Trends Workers' Compensation