The work comp insurance industry has been hit hard by declining revenues and a big drop in investment income. While the investment picture is brightening somewhat, the revenue side is not getting any better.
Continued high unemployment and associated smaller payrolls has directly affected premium income, while higher claim severity and a soft market that won’t end are adding to work comp executives’ misery.
And execs have a lot of reason to be miserable. Consider:
- Net written premiums declined twelve percent in 2008, the third consecutive year of decreases
- The combined ratio (claims plus admin expense) climbed to 104.4% last year – historically not so bad, but given the awful investment returns, bad enough
- Medical costs continue to climb significantly faster than the overall medical CPI
- Net income for the entire industry declined to below a billion dollars, a drop of over sixty percent from the prior year
Remember that perspective is historical – things will turn around, although it may take another twelve months or so. If employment picks up, as it should as the economy strengthens, premiums will head north. With AIG somewhat out of the woods, brokers and agents are expecting the pricing wars to taper off (some opine that AIG has been aggressively pricing business in an effort to hold on to clients and grab much needed revenue). If – a huge if – health reform efforts bear fruit, there will be less pressure on providers to cost-shift to workers comp payers. And the investment returns lookk to be recovering somewhat.
“If – a huge if – health reform efforts bear fruit, there will be less pressure on providers to cost-shift to workers comp payers”
Very relevant statement for some of my clients… My concern is the institutional memory of the hospital industry – traditionally very short. I look for short-term price relief, followed by an upward shift in the cost-curve that will only increase the cost of care. I see the driver in the short term being collected revenue (at least something) for the treatment of former charity or write-off cases. However, I anticipate it will take less than 18 months for hospitals to begin weighing their new revenue with the loss of dis-pro funds and then raise prices across the board to compensate for the low level of the “health reform” payments. Ripple effect projected to be increased premiums and growth of limited benefit plans and higher deductibles. Cost control could help here. Cost control coupled with utilization control would go further. Thoughts??