NCCI’s Dr Harry Shuford gave a great brief talk on the economy’s impact on the financial performance of WC.
A few key takeaways.
- WC is a relatively small part of the overall property and casualty insurance industry (around 11% or so)
- Average operating gain of WC has been about 5% over the last 20 years. That factors in an average return on investment of 14% and the underwriting results.
- WC premium dropped 23% from 2007 – 2009, then grew 18% from 2010 to 2012.
- Markets for all P&C lines seem to go thru cycles in synch. That is, when the personal auto market is soft, so is WC, etc. Harry’s inference – poor investment returns are key to understanding when cycles occur, and, perhaps more significantly, help us understand overall business cycles as high investment returns APPEAR to predict recessions.
- Cost drivers include:
- Long term structural decline in frequency – this is global and not limited to the US.
- The ebb and flow of inexperienced workers drives frequency as part of the business cycle – temps get added, frequency goes up.
- Medical severity is a huge driver – utilization, price, and intensity of services.
