For the first time since 2006, the workers’ compensation insurance industry reached profitability. The National Council on Compensation Insurance recently announced that the industry last year had a “combined ratio” of 96 percent for 2014, which means that for every dollar the industry received in premium, it paid out 96 cents in claims and expenses; or it made four cents on each dollar of premium.
That is big news to all those selling and buying workers’ compensation insurance. For the past eight years this industry has struggled to make a profit as claims and expenses have outstripped premiums. Even double digit rate increases over that period were not large enough to produce profits. However, continued focus on reducing claims with increased premiums each year allowed most private workers’ compensation carriers to make a profit and stay in business. Challenges, however, continue as disability claims and medical costs continue to rise. In order to stay ahead of those trends, carriers continue to increase rates. Premiums are expected to grow 7 percent overall across the nation this year.
In California, the situation has been improving, as well. Commissioner Dave Jones of the Department of Insurance approved an average rate increase of 2.2 percent. This is across all job classifications. Some classifications may see lower rate increases and some see an actual rate decrease. Those job classifications with higher risk factors will probably see significant rate increases. The commissioner’s decision is primarily a guideline for the industry, so individual carriers can file for rate changes that reflect the actual experience they expect to have with their specific book of business. The bottom line is this: although the marketplace experience has improved, rate increases will probably continue to occur as insurance carriers try to recover from eight years of losses.
In Arizona, the workers’ compensation market continues to evolve. In 2013, the State Fund of Arizona was transformed into a private mutual insurance company, Copperpoint Insurance Company. It no longer is a division of the state, but has become an insurance company, like State Farm, which is effectively owned by its policyholders.
This created a dynamic shift in the market in Arizona. Previously, the State Fund had been very competitive and at one time insured almost 70 percent of the workers’ compensation market. Being a state-owned and supported company, it had the backing of the state in the event it ran into financial issues. Since it has changed to a mutual company, it no longer has the financial backing of the state. It must operate like every other insurance carrier and make a profit in order to survive. This has forced Copperpoint to be more selective in accepting risks and it is not as “rate competitive” as it once was. Many of its prior customers have secured coverage with other insurance companies and the market has become more competitive. Employers of jobs in high risk occupations dealing with cattle, horses and agriculture continue to struggle to find coverage. The good news is the market is slowly adapting to some of these recent changes.
In spite of increasing rates from insurance carriers, business owners who take a proactive approach to their workers’ compensation programs can have a positive impact on their premiums by avoiding losses and managing the claims that do occur. Companies that focus on safety training and good business practices will find more carriers willing to insure their businesses as well as offer lower premiums. Those companies will also experience fewer losses, and those losses will be less serious thereby costing less in claim dollars.
Managing workers’ compensation losses after they occur is also very important. Many companies spend very little time reviewing and analyzing their workers’ compensation losses because they feel it is the responsibility of the claims adjustor to handle claims. However, business owners can take a more proactive approach and significantly reduce the cost of the claims they do have by working effectively with their insurance broker and their carrier in getting claims closed quickly. Most business owners don’t realize that many carriers are very receptive to working with their insured clients to reduce the costs of claims. Work with your carrier!
Western Growers Insurance Services (WGIS) has worked effectively with many members on safety efforts and controlling claims so that losses are avoided and minimized. This results in fewer losses, smaller claims and reduced experience mods. This provides more competition from carriers with lower rates and better services. If you’d like WGIS to provide you with more information regarding its workers’ compensation programs, please contact me — Greg Nelson, WGIS assistant vice president of Commercial Lines — at 949-863-1000, or via email at email@example.com.