Workers Comp Sequestration
The Sequestration has made the rounds in the press as almost a doomsday scenario. Is there going to be any lasting effect on Workers Comp if the imaginary fiscal cliff is reached?
Workers Compensation insurance profitability has centered on long term investment returns by the insurance carriers. As long term investment has suffered, the losses on Workers Comp have been diluted by writing a “full package” of coverage. Insurance carriers can then take the “WC hit” by not underwriting Workers Comp as a standalone policy.
Companion Insurance is a perfect example of very conservative underwriting. Companion decided a few years ago to stop writing Workers Comp as a standalone product. Best Insurance Ratings gave them an A (Excellent) with a stable outlook two weeks ago. The strategy seems to have worked on at least a medium-term basis.
Most insurance carriers have followed Companion’s example of not attempting to be profitable by writing just Workers Comp coverage. Most carriers are losing approximately 10 cents for every dollar underwritten in WC.
The sequestration is a short term problem at its worst. Workers Comp is a delayed system where the true profitability/loss on a policy is not seen for up to four years in the future. The sequestration will likely just be a radar blip when examined from that far into the future. If the sequestration was a planned series of events, then the insurance markets would show an effect.
The one area of concern may be if a policyholder is renewing their Workers Compensation policy during the next few weeks. As the sequestration is a short-term malady, the insurance and financial markets may show a moderate amount of stress for the next month.
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