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"A conflicted environment is not good or bad," said Steve Klingel, NCCI's president and CEO. "It's just difficult to navigate." Klingel's remarks kicked off NCCI's Annual Issues Symposium, where the rating organization released its assessment of the workers' comp market based on 2011 data.

Previously, NCCI had characterized the state of workers' comp as deteriorating. While combined ratios and investment returns were again unfavorable, the growth in written premium and moderating medical inflation were among several positive factors for workers' comp.

The 1 percent decline in claim frequency in 2011 followed a 3 percent increase in 2010 -- the first increase in decades. It is still unclear whether frequency is returning to its long-term downward trend, NCCI said.

In addition, Klingel listed the following positive factors:

• Net written premium was up for the first time in five years -- increasing 7.4 percent to $36.3 billion.
• The accident year combined ratio improved by more than two points, to 114.
• The economic recovery has produced job growth as well as some improvement in the housing market.
• Medical inflation continues its moderate rate of growth. The 4 percent increase in the average medical cost per lost time claim was "among the lowest increases in average claim costs since the early 1990s."

Leading the list of negative factors was the 2011 calendar year combined ratio -- 115. While it was the same as 2010, that year's figure was largely influenced by a single carrier.

Reserve deficiency has been up in each of the last four years and is five times higher than it was in 2007.NCCI estimates the reserve position for the private carriers as of year-end 2011 is an $11 billion deficiency.

The residual market grew in premium applications, and interest rates remain a concern for the workers' comp market.

"The market is still troubled, we're muddling through difficult trends," Klingel said.

Trends to watch. The increased interest of the federal government into the workers' comp space raises some concern, Klingel said. For example, it's unclear where the Federal Insurance Office stands since it has yet to issue its report to Congress. Also, changes in political party leadership in the White House or either chamber of Congress could signal new priorities.

From an individual state perspective, Klingel said Oklahoma and Vermont are states that deserve attention. Oklahoma's failed legislative attempt to allow employers to opt out of the workers' comp system will likely "cycle back" while Vermont's effort toward a single payer health care system may gain some traction.

Finally, Klingel outlined what he said were wildcards that could impact the workers' comp market either way. A significant spike in energy prices, for example, could have a detrimental effect.

While health care reform only minimally affects the workers' comp market directly, Klingel warned that a Supreme Court decision declaring the measure unconstitutional could lead Congress in unexpected directions, which could include workers' comp as part of the discussion.

The effects of the aging workforce and rising obesity rates also could have significant impacts on the workers' comp system.

Read more at the WorkersComp Forum homepage.

June 7, 2012

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