Rising medical severity. The worst combined ratio in a decade. Inadequate reserves. Stubbornly slack employment demand. Premiums down a full 23 percent over the last six years.
Things can’t get any worse, right?
Right?
Before we answer that, consider many asked the same question a year ago, and here we are. The most important single factor is employment – rising employment makes a lot of these issues way less significant. Employment drives premium dollars, which increases money available for additions to reserves. To say employment growth has been “disappointing” is to understate just how weak its been. Until employment growth increases significantly, comp writers are going to be running to catch up.
Specifically, they’re trying to increase premiums written to reverse the seemingly-intractable increase in the combined ratio. According to Fitch, the workers comp industry’s combined is at a ten year high at 117, a full 9.5 points above the average for the decade. There’s no doubt the 23 percent decline in premiums we’ve seen over the last five years was the big driver of the high combined.
There’s also no doubt rising medical severity coupled with reserve deficiencies are going to make improvements to the combined a “heavy lift”.
I’ll bang on this drum again – many payers have no idea what their opioid-addicted claimants are going to cost them. With opioids accounting for almost a quarter of all work comp drug spend, and the long-term usage of these drugs increasing everywhere (except California!), and few payers fully grasping the significance of this, the picture is ugly.
Being an optimist by nature, I’m hoping
a) employment picks up dramatically;
b) carriers don’t cross the stupid line when it comes to pricing;
c) insurers get a grasp on the cost of opioids and get serious;
d) regulators support that effort; and
e) employers start investing in safety, screening, and loss prevention.
Or at least two out of five.
Jul
31
