Each year NCCI produces a State of the Line Guide that provides a review of the latest workers’ compensation financial indicators, trends, cost drivers and broad economic markers. In this session at the NCCI AIS Virtual Conference, Chief Actuary Donna Glenn, FCAS, MAAA, provided an overview of NCCI’s findings.
COVID-19 has influenced sudden, sweeping and complex changes to our industry almost overnight. Legislation impacting compensability is changing by the day. Almost every aspect of workers’ compensation will be affected. Nevertheless, the system is strong and, if we work collaboratively, we can weather the storm.
NCCI is staying on top of the trends by creating a COVID-19 Resource Center that offers FAQs, real-time reporting on legislative activity and a Quarterly Economic Briefing series.
2019 Workers’ Compensation Results
In 2019, private carriers received an 85% combined ratio – two points higher than the previous year. Significant financial strength has been reported for some time, with six consecutive years of underwriting gains.
In 2019, the workers’ compensation investment gain on insurance transactions was 11%. The workers’ compensation pre-tax operating gain was 26%, which was the same as 2018, but significantly higher than the previous 10-year average of 8.1%.
The industry’s net combined ratio hovered around the break-even point of 99%, which illustrates that carriers have stressed the role of underwriting.
Net written premium for private workers’ compensation carriers came in at $42 billion dollars, down 2.9% from the previous years. When state funds are factored in, the total is $47 billion.
Residual market premium shows that risks continue to find coverage in the market, hovering over $1 billion. Residual market share was 7% in 2019.
Direct written premium declined slightly by -2.6%. The primary contributors to this decline is written premium variations between states that can vary by 15% increases or decreases.
Payroll increased 5.5% due to changes in wages and employment. The wage rate increased by 3.7% and employment increased by 1.5%
Lost-time claim frequency declined by 4% since 2018. Claim frequency has been declining for some time in all categories, including gender, age and industry. NCCI reports that the rate of injuries is decreasing due to several factors. Employers are improving worker safety and wellness in addition to automation advances that have shifted the workforce to generally safer occupations.
Back injuries have seen the largest decrease in frequency (-7.4%), indicating that companies have made great strides in back safety and training. Head/brain/face is the only category to increase by 1%. This category includes traumatic brain injuries.
Motor vehicle accidents have deviated from this trend, increasing while all other claims decreased. Since 2011, mobile phone ownership grew from 20% to 80%, influencing this increase. Surprisingly, hands-free Bluetooth devices have not seemed to help mitigate this risk.
Average indemnity claim severity increased by 4%. In the past 10 years, there has been an 85% increase in indemnity claim severity and a 78% cumulative increase in wage inflation.
In 2019, medical lost-time claim severity increased 3% in 2019. In the past 10 years, medical lost-time claim severity increased by 130% and there was a 59% increase in the personal healthcare chain weighted price index.
Employment is primarily down, which will significantly affect the workers’ compensation industry. Premium is expected to decline with reduced employment and hours. In addition, broad compensability actions could have severe financial impact.
Several factors may lead to upward pressure on the industry, including occupational disease claims and compensability expansion for workers. In contrast, other factors will likely arise that will have downward pressure on the industry, including deferred claims reporting or a reluctance to report claims in addition to changes in exposures due to telecommuting and remote working.
Overall, the system is financially strong and is well poised to handle future uncertainties.