Work Comp Insurers Under Stress

The NCCI (National Council on Compensation Insurance) has just announced that the U.S. Workers Compensation insurance industry is in a "precarious position". The overall combined ratio of U.S. WC insurers in 2009 rose to 109% (up from 101% in 2008). That's the biggest jump since the mid-1990's. This means that for every $100 of premiums they took in, WC insurers had $109 in losses and expenses.

It should be noted, though, that three percentage points of that increase came from a single (unnamed) insurer adding a billion dollars to its loss reserves. Poor investment income is also adding stress to Workers' Comp carriers, who rely on investment income to make up for thin (or nonexistent) underwriting profits.

Factors contributing to this development have included premium declines due to the economic downturn (lower payrolls equal lower WC premiums)and a continuing soft market for commercial insurance.

But a 109 combined ratio may change that soft market in the near future. At the very least, it will mean insurers will keep the pressure on when doing audits, to make sure they find every possible bit of premium they think they are entitled to. And sadly for employers, they may well occasionally try to find premium that they are not really entitled to under the rules.