NCCI: 2010 was good for workers' comp residual market administration

The residual market share of the total workers' comp insurance market is 3.5 percent in National Council on Compensation Insurance states. The Florida-based rating agency says that's the lowest level since 2000.

Estimated ultimate written premium for 2010 was approximately $432 million, according to the organization's just released Residual Market Management Summary 2010. Premium peaked at $1.5 billion in 2004.

The organization provides various services for the residual market in 30 jurisdictions. Last year was "a good year for workers' comp residual market administration," the report said.

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Among the key indicators in the report are:

State workers' comp systems remained stable.
Residual markets continued to depopulate.
Overall residual market operating results deteriorated.

Operating losses have been held to 0.8 percent of voluntary premium, the report said.

"Essentially, the residual markets are self-sufficient in all but a few states where incurred losses and expenses are greater than written premium."

Valued as of Dec. 31, 2010, the report said the states with the highest 2010 projected operating losses in order are:

Illinois -- negative $13 million.
Georgia -- negative $11 million.
Michigan -- negative $11 million.
South Carolina -- negative $9 million.
New Jersey -- negative $7 million.

NCCI said the continued depopulation in the residual markets was driven by the economic recession, competitive insurance markets, and NCCI's depopulation efforts.

"While the decline in residual market business continues, it has slowed in 2010," the report said. "As of year-end 2010, residual market policies in force are down 10 percent compared to a 20 percent decline for 2009. Fortunately, NCCI has been able to maintain stable operating results even during the decline in business by focusing on rate adequacy, effective rating plans, expense controls, and effective Assigned Carrier Performance Standards."

The combined ratio for the NCCI residual market pools moved from the 115 percent range to the 120 percent range in the organization's early estimates. "We are watching this closely," the report said.

With workers' comp residual market premiums nearing "historically low levels," NCCI said its staff is focused on effectively managing plan and pool expenses, monitoring the impact of large losses, managing assigned carrier quotas, and researching new approaches to reducing uncollectible premium amounts.

"These issues are always a concern, but they become magnified in a small premium environment," the report said. "NCCI has numerous incentives and enforcement programs to encourage collection of all premiums."

Read more at the WorkersComp Forum homepage.

July 25, 2011

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