Skip to main content

Workers’ Compensation Update

By May 20, 2010Commentary

A critical question for vendors of workers’ compensation services is the overall state of the market.  Each year the NCCI has an annual symposium devoted to describing that state and illuminating trends and issues.  (NCCI Presentation) Vendors and employers may have a different reaction to the same state of affairs.  For example, employers are probably very happy that claim frequency, workers’ compensation premiums and the percent of total labor costs represented by workers’ compensation continue to decline.  For vendors, however, this probably means less volume and less revenue from workers’ compensation insurers and self-funded employers.

Total premiums continued to drop sharply in 2009, largely because of significant job loss, especially in manufacturing and construction, and continued claim frequency declines.  It is possible that workers are less inclined to file claims in a recession for fear of adverse job consequences, as claim frequency has historically gone down during recessions.  The industry continues to run in the red on a combined basis and has almost no operating income and has suffered decreases in investment income, but because of fewer claims, its surplus and capital position remains good.

Indemnity, or lost wage claims have an increasing average claim cost, largely due to greater severity.  Medical claims have become over 50% of workers’ comp costs and average cost per claim continues to increase above general inflation, again largely due to severity, although medical inflation also contributes.  While vendors to help manage medical costs and lost wages claims must deal with shrinking frequency and revenue, meaning they largely are fighting to take market share from each other, the continuing growth in severity for each aspect of workers’ comp costs, and the continued relative growth of medical costs, means there will likely be strong demand for services which can show results in constraining that growth.

Leave a comment