The president and economist of the Insurance Information Institute delivered generally positive news about the industry during a presentation for the annual Workers' Compensation Educational Conference.
Unemployment and underemployment rates are steadily improving, though they remain "stubbornly high," Hartwig said. The July unemployment rate of 7.4 percent was the lowest in more than four years. He predicts the rate could dip below 7 percent by the first quarter of 2014.
Dampening the falling unemployment rate is the job situation in the public sector. "Government at all levels has shed more than 625,000 jobs since January 2010 even as private employers created 7.29 million jobs, though losses may now be stabilizing," Hartwig said.
Unemployment in the public sector has pushed the overall rate up by 0.5 percent. Most of the lost jobs have been in local governments.
Strong growth in the construction industry, a key driver of workers' comp exposure growth, is good news for the industry. "Construction employment as of July 2013 totaled 5.79 million, an increase of 358,000 jobs or 6.6 percent from the January 2011 trough," Hartwig said.
However, the news about that industry could be better. There were some 2.3 million construction jobs lost during the recession.
"We will probably not come close to ever gaining all the 2.3 million jobs," Hartwig said. "But could we get 1 million? The answer to that is yes, and that is unambiguously good news for everyone at this conference."
Joining Hartwig to deliver the state of the market address was Jeff Eddington, senior division executive of regulatory services for NCCI. He outlined the following positive developments:
- Net written premiums have increased by 8.8 percent for calendar year 2012. Eddington credited reemployment as the main reason.
- Frequency declined in accident year 2012 to minus 5 percent.
- The combined ratio has dropped from 115 percent to 109 percent.
- Severity growth has moderated. Indemnity severity for 2012 is projected to be an increase of 1 percent while medical severity is estimated to have increased 3 percent.
- Investment returns have grown by at least 14 percent in each of the last three years. However, "it won't last," Eddington warned.
"We are seeing some good things," Eddington said. "But competition is heating up, underwriting is tightening up. It is not surprising we are seeing the residual market increase."
The year 2012 has seen a "significant increase" in residual market premium, Eddington explained, and is up 56 percent. The residual market now comprises 7 percent of total market share, up from 5 percent in both of the preceding years.
The slow pace of the economic recovery, underwriting results,interest rates at historic lows, and theuncertain impact of health care reform are the "negatives" Eddington sees for the workers' comp line. "The Affordable Care Act will have an impact, but we don't know what that impact will be."
Echoing Eddington's comments about the ACA, Hartwig called it "one of the largest economic experiments we have ever seen," saying he is "very curious" to see what the impact will be.
By Nancy Grover
Read more at the WorkersComp Forum homepage.
September 16, 2013
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