Is A 2018 Soft Market For Workers Comp Here or Is It Something Else?
A 2018 soft market began to show up in some of the data this year. In fact, over the last week I have been interviewed for articles on the current WC market conditions.
Interesting enough, the carrier rates over the nation have fallen faster than the Rating Bureau advisory rates. California has recently seen this effect. In CA, the advisory rates from the WCIRB (Workers Comp Insurance Rating Bureau) are referred to as pure premium rates.
Is this a sign of a soft market or something else?
The soft market or at least a softer market may have nothing to do with the drop in carrier rates compared to the advisory rates. Why?
Everything in workers compensation rating has an offsetting variable or variables. With the artificial increase in Mods, the carriers’ underwriters actually saw a chance to make their respective carriers look wonderful as they decided to drop rates ahead of the curve.
The artificial increase in Mods was initiated in 2013 by NCCI – better known as increasing split points. The split points between the primary loss in a claim and the excess loss changed dramatically. From 2013 and forward the primary loss (think expensive part of claim) increased from $5,000 to $15,000.
The offsetting variables were that state rating bureaus and NCCI reduced their advisory rates as the increased Mods caused the premiums to increase overall. Carriers’ combined ratios are now reaching to over 100% which makes Workers Comp profitable again.
Recently, California’s WCIRB dramatically changed the Mod formula. It is now based on the size of the respective employer. In my humble opinion, the carriers saw they could be profitable while reducing rates as the Mod will increase the Mods enough to allow for sharper rate decreases than the WCIRB’s recommended rates.
I am basing my opinion on having seen small company Mods increase over the last few month with no increase in claim values.
One only has to look to all of the states decreasing their recommended rates – sometimes by over 10%. Did safety and risk management fuel the lowering of rates? I would hope so, but the results would not be so dramatic.
The picture above is the soft orange lion coral. It looks rigid, but is extremely soft.
The bottom line is that one has to think that there is some variable out there that is the offset to the sharply decreasing rates resembling a possible 2018 soft market condition. Time will tell over the next three years to see the full effect.
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