At the 2015 NCCI Annual Issues Symposium, Kathy Antonello, Chief Actuary for NCCI presented their State of the Line review which provides an exclusive review of workers’ compensation trends, cost drivers, and the significant new developments shaping the industry.
2014 Property/Casualty (P/C) Industry Results:
- All P/C lines saw premium levels increase in 2014. The industry as a whole saw a 4.1% increase.
- The P/C combined ratio showed the ratio climbed one point to 97%.
- Only five of the last 30 years have seen P/C combined ratios below 100%, and those have all come in the last 10 years.
- P/C industry investment gain ratio for 2014 is 11.5%, which is 1% lower than last year.
- P/C industry after-tax return on surplus is 8.4%, which is lower than last year’s 10.2%.
- P/C industry premium to surplus ratio is .74:1. Total industry surplus is $675 billion.
2014 Workers’ Compensation Industry Results:
- Total premiums increased to $44.2 billion, the fourth state year of premium increases. For state funds, the increase was over 15% and state funds now control over 12% of the total marketplace.
- Combined ratio was 98% – down from 102% last year.
- Loss ratio dropped to 58%. This is the lowest ratio in 17 years.
- Loss adjustment expense (LAE) ratio was flat at 14%, LAE-to-loss ratio came in at 25% – the highest ratio since 1998. Cost containment expenses are what is driving this increase, in particular, the LAE from California has increased significantly following the enactment of SB863.
- Underwriting expense ratio fell from 25% to 24%.
- Investment gain on insurance transactions was 12% – the lowest figure seen in 5 years and below the long-term trend of 14%.
- State fund combined ratios were 115% – compared to private carriers at 98%.
- The projected 2014 accident year combined ratio is 95%, which is the best ratio since the recession.
- Loss and LAE net reserve deficiency for 2014 is projected at $10 billion. That is $1 billion less than 2013. $4.6 billion of this is the discount on lifetime benefits that is allowed under accounting rules.
2014 Workers’ Compensation Premium Drivers:
- Countrywide premium growth for private carriers was 4.6%.
- The largest state increase was 16.4%, while the largest state decrease was 10.6%.
- Increase in payroll was the largest component of this premium growth.
- Employment levels have increased for many industries, but some industries are still lagging. The employment level for manufacturing is 88% and for construction is 80%.
- Rate decreases are not always driven by benefit cuts to injured workers. Often this is driven by instituting caps on attorney fees and medical fee schedules.
- The average voluntary market rates filed are down 4.8% countrywide.
- The largest decrease for filed rates is in Texas at 10.9% and the largest increase was D.C. at 6.8%. Only seven states saw filed rates increase last year.
- According to the CIAB, in the first quarter of 2015 only 33% of accounts are seeing premium increases.
- Estimated change in frequency for 2014 is a decrease of 2%. This is the lowest decrease in the last five years.
- Average indemnity costs per lost-time claim increased by 4% – the highest increase since 2008. This was 1% higher than increase in state average weekly wage.
- Average medical-cost-per-lost-time claim increased 4%, which is the 20th consecutive year with a cost increase. Change in U.S. Medical CPI was only 2.4%, so workers’ comp costs are increasing at a higher rate than overall health costs. Only six states have seen a decrease in medical costs in the last five years.