CBO Predictions Bad Sign For Work Comp
The CBO predictions mean a big ouch for WC.
The recent revision by the Congressional Budget Office (CBO) in reference to future employment numbers is dire at best. The CBO Charts are here. Please note the file is a PDF file and not a webpage.The political ramifications will not be covered overall. The data will be the only areas examined.
The CBO is basically the best source for the Federal Government’s budgetary figures. As we all know that when the labor force declines dramatically, Workers Comp payrolls and premiums will decrease proportionally.
One has to look no further than the following chart in the title page of the report to immediately see the decline in labor force participation. There is a valid argument that increases in wage can offset the decline. However, the increase in wages will very likely not even approach the lost payrolls.
Insurance carriers are going to have to make up this ground somehow. Most economic models say that when demand for a product decreases, the price for that same product will decrease. This is not true for WC rates.
The pricing models in place for WC charges more for each dollar of coverage when the payroll is smaller. This is due to the risk of an accident cannot be offset by the lower premiums paid by employers. Insurance carriers are not trying to increase profits. Smaller employers pay more per unit of WC coverage. This is an insurance market norm. Check here for a further analysis of a shrinking WC market.
This could possibly also cause the market to harden for WC though there are other variables that would need to change to cause this to happen by 2020.
Hopefully, the CBO may be over-projecting job losses in the coming years. If not, then many companies may end up paying more premiums on a smaller profit margin. There may be another market force in effect. which may offset some of the premium increases. If the situation or the CBO’s forecast changes, I will then post another article on the situation.
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