NCCI Says Workers Comp Combined Ratio 94%
When NCCI says Workers Comp Combined Ratio fell 6% in one year, that was a real shocker no one could have anticipated from last year.
What happened in the Workers Comp underwriting and risk arenas that would have made such a turnaround in just one year?
According to the 2016 State of the Line Report at NCCI’s Annual Issues Symposium, the combined ratio statistic shrank from 100% to 94%. (See slide 21 of the report). The report is a rather large PDF file. If you are in the Workers Comp world, the report is worth reviewing even if for a few minutes.
The combined ratio is a great measure of overall market health. The combined ratio is one of the better indicators on how the Workers Comp market is functioning for carriers. One can draw an analogy to a personal credit score as your main financial figure.
The formula for the Combined Ratio = (Loss + Loss Adjustment Expenses + Underwriting Expense + Dividends) / Earned Premium.
The formula in simpler terms is outgoing funds/ incoming funds.
A carrier or complete marketplace can still be profitable even with a Combined Ratio over 100% if the investments earn enough of a return. However, investments are not earning that much of a return.
How did the Workers Comp industry become profitable so quickly? NCCI pointed to automation and general technology. In my opinion, the results were due to taking Workers Comp off the back burner after employers were paying so much attention to the effects of the Affordable Care Act.
NCCI has a treasure trove of free educational information which is just a few clicks away. You may want to explore their website for such terms as NCCI says workers comp combined ratio or just combined ratio for more information.
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