At the 2017 NCCI Annual Issues Symposium, Chief Actuary Kathy Antonello shared details from NCCI’s analysis of the latest trends and cost drivers in workers’ compensation. The data looks at information for 2016 and compares it to data from 2015. The highlights:
- Total P&C premiums increased from $514 in 2015 to $527 billion in 2016. This rate of growth has been slowing for years.
- The biggest increase was in personal auto premiums.
- Underwriting results deteriorated for the industry to a combined ratio to 101%. Personal and commercial auto along with product liability had the highest combined ratios.
- The ongoing historically low interest rates continue to impact industry combined ratios.
- The average investment gain ratio for private carriers in the P&C industry decreased for the third straight year, down to 11% from 11.3%.
- P&C after tax return on surplus dropped from 8.5% to 6%. The big reason for this was increased loss ratios. The experiences of two carriers had a large impact on this.
- P&C surpluses remain strong and have continued to increase.
- Net written premiums remained relatively flat from 2015 to 2016. We have yet to exceed the pre-recession peak of premiums which was achieved in 2005.
- Workers’ compensation industry combined ratios for 2016 also remained at 94%, the same as 2015. There have not been consecutive combined ratios at this level since 1975. A single carrier contributed 4% to this because of their adverse loss development.
- The residual market share is 8%, flat from 2015. There is significant state variation on this ranging from 1% to over 20%. These are risks that cannot find coverage in the traditional marketplace.
- There were significant premium decreases in Texas and West Virginia and significant growth in New York. EDITOR’S NOTE: What impact does non-subscription have on premium decreases in Texas?
- Premium growth is driven almost entirely by payroll growth. 1% of the growth was due to the Utah State Fund converting to a private carrier.
- The most recent voluntary rate filings have been negative in every state except Hawaii and South Carolina. The largest decreases were in West Virginia, North Carolina and Illinois.
- Loss adjustment expenses, underwriting expenses and dividends remained stable 2015 vs 2016.
- Loss ratio based on claims costs alone were 53% nationwide.
- 2016 accident year combined ratio was 98%.
- For 2016 the projected reserve deficiency for the industry is $5 billion (4% of current year reserves). This is $2 billion less than last year. Over time, some accident years develop higher, others develop lower. Overall they feel industry reserves are adequate.
- Frequency for 2016 was down 4%. The average annual change from 1995-2015 has been 3.6%.
- Medical cost drivers; 38% physician, 18% hospital outpatient, 13% hospital inpatient, 11% pharmacy, 8% DME and implants, 7% ambulatory surgical centers, 5% other.
- 24% of physician costs were due to surgery.
- 2011 generic pharmacy was 47% vs 58% in 2016. Most of this increase is due to patient expiration on popular meds vs efforts from payers and regulators.
- The countrywide average reimbursement rate for physician payments is 150% of Medicare reimbursement rates. With the exception of Alaska, the states with the highest reimbursement rates for physicians all lack fee schedules.
- In 2015 medical lost time severity was down 1.4%. For 2016 that number is up 5%.
- The cumulative change to medical lost time severity 1995-2016 is 227%.
- For 2009-2016 prices went up 12% and utilization increased 2%. Prior to that utilization increases were higher than price increases and were the driver for cost increases.
- Indemnity claim severity increased 3% in 2016 vs 2015. This is very close to the change in average weekly wage over the same period.