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Hard Workers Comp Markets – The Silent Reasons Why


Hard Workers Comp Markets – Two of the Reasons Not Discussed That Often

The hard workers comp markets usually occur when the suppliers (carriers) cut the supply of insurance to (demand) employers.   I have heard investment returns often discussed in many of the reinsurance webinars and articles – not so much in the workers comp insurance discussions.

basic supply demand chart hard workers comp markets
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Those two areas are:

  • Investment returns
  • The stacked random variable introduction this year

Investment Returns Influence on Hard Workers Comp Markets

Investment returns remain one of the drivers of the insurance markets.   The investment returns that carriers experience influences the rates they charge their insureds.

Insurance carriers heavily prefer solid non-volatile investments such as deposit interest rates.   Even though the stock markets have recovered much of their losses the volatility remains extreme.

The nations’ largest rating bureau NCCI – published a .83 combined ratio last year.   In a very roundabout way, this means the carriers are receiving a 17% return on premiums written.   That percentage indicates the market is healthy with much competition.  A soft market would likely be the result of such dramatic numbers.

Stock Market Volatility and Extremely Low Interest Rates

If one reads any of their mutual funds’ prospectus, many times right on the front page the mutual fund says – there is a chance of loss.

Even though carriers had a 17% return on premium, the wild swings in the stock markets make most carriers very uneasy.   Carriers have that same chance of loss as an individual investor.   The 17% return can be lost in a few days.

Insurance carriers prefer interest-bearing investments including bonds.   I just read the NC State Employees Credit Union investment returns on IRAs.  IRAs are considered permanent investments – the money stays there.   The rate of return was 0.76% (Wow!).

The safety of interest-bearing investment is offset by the minuscule rates of return.   Bond markets do not look that great either.

How do insurance carriers remove this volatility – by not underwriting all markets or class codes.  They can remove risk on the “other end” of their financial books.   Many insurance industry experts have almost unanimously said the markets are “tightening.”

The tightening could be temporary.  Workers Comp carriers move very slowly back into a market or class code where they have pared back underwriting certain companies.

New Random Number Variable – Heavy Effect on Workers Comp Hard Markets

I have attempted to not write articles on COVID-19 lately.  So many writers publish those articles every week.   The COVID-19 caused a random-number-variable stacking.

Presumptions and Claims Handling

Woman Doctor Hard workers comp markets with yellow mask on
Wikipedia – Agência Brasília

As of today, 17 states have passed COVID-19 presumption laws that make actuaries, underwriters, and claims handlers very uneasy.

Many claims experts including myself have voiced their opinions of the need for presumption laws.  I wrote an article on that subject a few weeks ago.  Check it out.   The Workers Comp Occupational disease statutes have presumptions built into them.

Regardless, they are law now and must be followed.  The COVID-19 is a stack-risk.

COVID-19 introduces three random number variables to the risk equation:

  • COVID-19 increases the risk of an on-the-job occupational disease
  • The presumption laws may change the claim handling procedures for the investigation of COVID-19 claims.
  • Our changing relationships with China – this is a subject for a later article.

When you have actuaries, claims handlers, and especially underwriters nervous, the best way to remove some of the nervousness is by not underwriting every company that submits a workers comp app like the old days.

The nervousness results in hard workers comp markets.

Also Read: What Is A Guaranteed Cost Program In Workers Compensation?

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management 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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