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Major Workers Comp Changes On Horizon Fed .25 Point Increase?

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The 10 Ways The Fed May Cause Major Workers Comp Changes

Graphic of major workers comp changes on Road With Coins Dollar and Building at the Back
(c) stockunlimited

We could be on the verge of major workers comp changes.  The Fed Head Janet Yellen and her Board just increased the Federal Bank lending rate by .25%.  This may not be a jolt to the insurance markets – yet.  Read the article linked to in the second sentence.  Yellen may institute a stealth increase soon.

A scenario follows which may cause a Hardening of the Markets.   I warned about this before when China was affecting the world money markets.   Now, the money market changes are much closer to home.

  1. The Fed increases the prime lending rate a few times over the next two years.
  2. Naturally, the investment and debt interest rates will follow.
  3. Insurance carriers have been able to support a soft market by making up their lower premiums with outside stock investments – check any insurance carrier’s financial statements.
  4.  Over the last 50+ years, when interest rates look better, people and companies move their funds from stocks to money market accounts.
  5.  Over the same last 50+ years, the numbers show that stocks earn much more than any type of interest bearing account
  6. Insurance carriers will not be able to earn the same returns, stocks earnings always beat interest bearing accounts
  7. As mutual funds and investors in general put money on interest, the stock market usually suffers – not a market correction

    Exchange Money Major Workers Comp Changes Funds
    Wikimedia Commons flickr.com-epSos.de
  8. The carriers have to make up the prior soft market underwriting losses somewhere – namely premiums
  9. Due to these major workers comp changes,   carriers will become risk averse and stop underwriting certain riskier markets
  10. The above nine steps are not a crisis of any kind.  They represent the start of a Hard Market.  
  11. Bonus thought – as the dollar strengthens (as it has for three months), foreign investments will suffer as bringing funds back into the US will cost much more than in 2016 and previously.  Ouch for foreign investments

A friend of mine says that even a broken clock tells the correct time twice a day.   He could be correct in this case.  The stealth concern is that the US printed money by the basketful.

Businessman Major Workers Comp Changes Embracing Dollar Sign
StockUnlimited

The interest rate on a large amount of currency – we do have a ton – needs only small interest increases to cause a spike in inflation > Think about Greece in the EU.

Will 1 – 11 above happen?  The Fed would have to increase interest rates over the long term each time they meet.  Carriers may decide to take it on the nose just to keep business.

Are the conditions right for a hard market?  Major workers comp changes may occur if the interest rate spikes.

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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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