Workers Comp Is A Time Bomb
A time bomb may go off soon in Workers Comp. The post title has hit the Workers Comp airwaves after the President of Liberty Mutual had made it at a recent presentation. I often do not necessarily agree with Liberty Mutual. However, in this case, I think the assertion is highly accurate.
The combined ratio for the Workers Comp market is 119%. The 119% is not the highest combined ratio in history. That means that when a carrier writes Workers Comp coverage it is at a loss. I have often commented in my presentations that Workers Comp carriers were writing low premiums and taking huge losses as they could recover it in the stock and bond markets. Now, they must invest it in fixed investments. Does this sound like a hard market is approaching?
A hard market is basically when carriers become very strict in their underwriting procedures. According to the old supply and demand model, if supply is cut and the demand is still strong, prices must increase to keep the market stable. If carriers become much more stringent, then employers with E-Mods of 1.2 and above will likely end up in risk pools/state funds which charge up to 400% more for the same coverage.
The telling statistic is as follows – according to the Wall Street Journal, John Doyle, the president and CEO of American International Group Inc.’s (AIG) U.S. property-casualty operations, said his unit had cut back on how much workers’ compensation coverage it sells. It now has annual premiums of about $800 million, compared with $3 billion in 2007.
So the largest writer of Workers Comp is now highly concerned about a hard market and one of the major writers of Workers Comp just cut their writing by 74%……Tick Tick Tick.
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