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Workers Compensation Insurers Show Substantial Profit Last Year

For several years, the U.S. property/casualty (P/C) industry’s workers’ compensation line has suffered underwriting losses.  However, 2015 marked a significant turnaround, according to a recently released report published by Fitch Ratings, Inc.  The report showed substantial profits for P/C workers’ compensation line.  Yet, Fitch also projects that due to recent competition, the workers’ compensation (P/C) line will return to an underwriting loss by 2017.  Jim Auden, managing director at Fitch, made a statement on the report saying, “The workers comp insurance market saw a sharp turnaround in the last few years due to past premium rate increases, stable loss cost trends and improved loss reserve experience, however, this performance will likely be unsustainable as price competition intensifies due in part to abundant market capacity.”  Fitch reports the segment underwriting combined ratio plunged from a cyclical peak of 117 percent in 2011 to the recent 95 percent in 2015.  Fitch predicts the workers’ comp line will produce a higher combined ratio of 98 percent this year followed by underwriting losses in 2017.  Steve Goldberg, Dallas-based chief risk and operating officer at AEU Holdings L.L.C. and president of TEE & GEE Group, said he wouldn’t be surprised if the combined ratio went as high as 105 percent in 2016 since “there isn’t enough medical management to offset the rise in medical provider costs.”  The Great Recession negatively impacted the workers’ compensation business, as it did most other businesses, specifically causing weak pricing and substantial drops in segment premium volume.  The underwriting response to the losses inexperienced in 2010 and 2011, in addition to the improving economy, caused a steep spike in written premium volume for the segment.

Further underwriting losses could be detrimental to companies seeking workers’ compensation insurance, notes Mike Vitulli, Boston-based vice president of Risk Strategies Co. Inc.  Vitulli predicts that some insurers will “avoid certain classes of business or states—or both” therefore reducing the insurance options for clients.  One example he provided in an email is that technology firms will probably not have difficulty securing workers compensation insurance for their employees but home health care companies in Massachusetts, where nurses often suffer musculoskeletal injuries on the job, may have more trouble finding coverage. 

The Fitch report also discusses the shift in market share in the workers comp space.  Because workers’ compensation is the “largest individual product segment by premium volume in the commercial lines market”, there are a vast number of underwriters involved in the business.  Within the last five years, Berkshire Hathaway Inc. and AmTrust Financial Services have had significant growth, while American International Group Inc. and Liberty Mutual Insurance Co.—previously spearheads of the industry—have decreased underwriting exposures.  Auden also said, “As the market landscape shifts, there have been a number of companies that have demonstrated extraordinary growth, however, Fitch considers rapid growth that is well in excess of the market’s growth rate to add considerable risk to an insurer’s underwriting profile.

 

“Fitch: Workers’ Comp Insurance Profitable as Competition Heats Up.” Claims Journal News. N.p., 12 July 2016. Web. 14 July 2016.

Goldberg, Stephanie. “Works Comp Cycle Poised to Tighten For Insurers, Buyers.” Business Insurance. N.p., 13 July 2016. Web. 14 July 2016.

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