Workers Comp Combined Ratio Means Market Extremely Healthy

September 5, 2019 By JL Risk Management Consultants

Workers Comp Combined Ratio Questions Asked By Readers Over The Last Week

Workers Comp Combined Ratio remained a hot topic from last year. Last week, at the NCCI Virginia State Advisory Conference, the Workers Comp Combined Ratio stunned the audience, and even the NCCI presenters.

Last year, the level was at .89, which many pundits and actuaries thought the Combined Ratio was bottoming out to the lowest point or bottom of the trough. I received quite a few questions on how the Workers Comp Combined Ratio equals a healthy market.

One must remember the Workers Comp Combined Ratio level of .83 pegs a national statistic. Each state may have a different level.

How is the statistic computed?

The Combined Ratio computes out as Losses + Expenses / Premiums.

What does that mean for insurance carriers?

For each dollar of premiums written, the insurance carriers generated a 17% quasi-profit. The formula above over-simplifies the current market condition. The overall market, though, has been healthy since 2017.

Is NCCI confident in the figure?

Yes, the NCCI Actuary presenter Jay Rosen felt the figure, while unexplainable to a point, was very accurate. They use the numbers given to them by their members.

Why did the market turn so positive so quickly?

Man workers comp combined ratio on the table working on computer

Wikimedia – U.S. Navy photo by Corinna Duron

The NCCI presenters at the Virginia Forum seemed to not be 100% sure of why the market became so healthy. Take a look at the formula. The losses had to reduce or the premiums had to increase for the ratio to shrink.

If you check out the graph (Courtesy of and Copyrighted by NCCI) at the top of this article, you can see that nationally the Net Premiums Written have increased over the last few years. Check here for the Virginia State Advisory PDF files.

Overall, there was no one statistic or number that was the “aha” moment. Wages rose a little. Indemnity severity and number decreased a smidgen. No one variable made it the Workers Comp Combined Ratio drop. All the variables mixed together made the underwriting gains increase significantly.

Would a recession return the number to above 1.0?

A recession would move the numbers back closer to 1.0. One has to remember the NCCI figures run approximately 18 months behind due to the time needed for data collection and calculation. The market will remain healthy through 2021 regardless of a recession.

Please remember that a slowdown and a recession are two very different animals.

The national Workers Comp Combined Ratio looks excellent. What about my specific state?

If you wish to know the Combined Ratio in your states of operation, click here for the NCCI list. If your company operates in non-NCCI states with independent bureaus (i.e., Pennsylvania, North Carolina) those bureaus crank out the same statistics. NCCI covers the largest number of states.

Why don’t the carriers refund some of that profit to policyholders?

I recommend not getting down into the minutia of where does the 17% profit end up with the carriers. As a policyholder, check your newest or upcoming quote at renewal.

The industry workers should be happy with that number. As long as the market is healthy, the agents, adjusters, actuaries, underwriters and other workers comp personnel should know that a healthy market means more room for advancement and job security.

Look at the Workers Comp combined ratio as a bellwether.

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Combined Ratio South Carolina NCCI Advisory Forum Shocker

December 10, 2018 By JL Risk Management Consultants

US Combined Ratio Falls Even Further to Historic Lows

US Combined Ratio Results

The US had its best Combined Ratio last year since the 1950s and is improving even more. The current Combined ratio is .89 nationwide.

Wikimedia Public License

I first heard about the incredibly low ratio at NCCI’s Virginia Advisory Meeting in September of this year. The Combined Ratio for 2016 was .94. The ratio remains under 100% for more than three years.

The last time that carriers experienced a Combined Ratio this low was .93 in 2006.

NCCI predicts the Combined Ration will be even lower for 2018 = .88. Usually, the Combined Ratio will “bottom out” with a low figure then increase to a higher level. Two years of incredibly low Combined Ratios look great for any comp-only carrier or any carrier that writes WC coverage.

See the chart below for Combined Ratios over the last 20 years.

For many years, the other lines of coverages – think General Liability, Property, Errors, and Omissions- contained enough profit to cover the terribly high combined ratios of 1.1 or higher.

Let’s stop and put that into perspective. The Combined Ratio is calculated by dividing losses by earned premium or

Losses + Expenses / Earned Premium

or in basic form

Funds Carriers Paid Out / Funds Carrier Took In

$40.1 Billion net written premium in first six months of 2018. State Fund’s share of written premium has shrunk. 0% change in net written premiums. Payroll is still the main driver in premium changes. Rates and Loss Costs = -10%. Claims frequency has fallen while being offset by a moderate increase in claims cost.

South Carolina Results

The South Carolina payroll figures are comparable to the US. South Carolina’s combined ratio was .97 for 2017.

This equates to an 11% profit on Workers Compensation nationwide or a 3% profit margin for South Carolina.

Carriers presently not able to provide more significant discounts as in the past due to their internal ROI is presently lower.

Loss reserve analysis – look this up online.

In 2016 – 2017 SC loss frequency fell by 6%. Indemnity claim severity increased 4%. Medical claim severity increased 4%.

Frequency decreased 2% for SC in 2015 and 2016.

SC does not have a burn center. There were three to four severe burn claims that experienced out-of-state fees that are not covered by a fee schedule as the injured employees had to be treated outside of SC.

SC NCCI recommended 9.2% decrease for 4-1-19 loss cost filing.

SC Change in Experience of 8.3% was responsible for most of the recommended loss cost decrease.

SC Legislative Issues – A few Opt Out bills were introduced by the Legislature but nothing happened with them. The bills were based on the Texas Opt Out Model

Other NCCI Information

US – 844 bills introduced that were WC related, 474 were NCCI states, 94 bills were enacted – 111 first responder bills.

NCCI also covered:

South Carolina and National Residual Marketplace
Marijuana
Opioids

One survey question that caught my eye at the end of the Advisory Forum consisted of asking whether or not an in-person Forum or a webinar would be preferable. This leaves one to think that NCCI may be heading to webinar-based Forums.

The November 29th NCCI State Advisory Forum slides are here. The file is a PDF. I recommend taking a few minutes and reading up on the US and South Carolina statistics including the Combined Ratio.

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NCCI Virginia Advisory Forum 2018 – Shocking Nationwide Statistics

August 2, 2018 By JL Risk Management Consultants

Shocking Results at NCCI Virginia Advisory Forum – All Good

The NCCI Virginia Advisory Forum showed a strong Workers Comp market. The strong market is not surprising. The strength of the nationwide market was astounding.

pcture of working NCCI Virginia Advisory forum

Public Use Wikimedia – Henry Lawford c/o Flickr

I attended the NCCI Virginia Advisory Forum in Richmond yesterday. North Carolina has it own independent rating bureau. Richmond lies nearest to our HQ in Raleigh, NC. The results make it a worthwhile trip.

Last year, the agents/brokers packed it into the meetings. I arrived 5 minutes late and had to sit in the back. This year, the carriers and TPA’s were out in force.

The national statistics indicate the Workers Comp market combined ratio dropped to its lowest level since the 1950’s. What? Last year the NCCI Virginia Conference produced similar results.

NCCI always provides their slides from almost any meeting or conference. The slides for the 2018 Virginia Conference are here. The slides are a PDF file if you wish to download them.

These are my handwritten notes:

Combined Ratio – Lowest level since the 1950’s. See slide 17 in the PDF link above.
Payrolls have increased by 3.4% or 4.4% – depends on the source of the estimate.
9.6% Loss Cost Reduction
No end in sight to Combined Ratio reduction – quoted by Jay Rosen, NCCI Presenting Actuary

The Combined ratio can be thought of as a profit figure. The lower the figure, the more possible profit there is in the market for carriers. I myself had thought there would be a bottom to the net combined ratio. There does not seem to be one now or in the foreseeable future.

The formula for the combined ratio is in this article from the 2017 Virginia Advisory Meeting. Last year, the ratio was .94. For some reason, I had thought that was the bottom. I was incorrect.

My notes also show a result of a polling question asked by NCCI towards the end of the conference.

What is the most important issue to you with Workers Comp?

The two main categories were:

Fraud – by a large margin
Cost – a distant second

I recommend downloading the PDF file from this presentation and reviewing it. It will be worth your time to see all the topics covered at the NCCI Virginia State Advisory Forum.

Workers Comp Statistic Combined Ratio Best In 50 Years – NCCI

August 8, 2017 By JL Risk Management Consultants

NCCI Workers Comp Statistic Combined Ratio Smoking

One workers comp statistic stood out the August 3rd NCCI Virginia State Advisory Forum. Actually, it exceeded even my positive outlook for the Workers Compensation market health.

Wikimedia Commons – CZmarlin

The Combined Ratio performed even better than last year in the overall market. Last year the ratio pegged at 94%. What does this mean? The formula consists of three main variables:

Losses + Expenses / Earned Premium

The current workers comp statistic – Combined Ratio came in at 85% this year. The Combined Ratio measures a market’s total efficiency. Investment income by carriers is not counted in the Combined Ratio.

According to NCCI,, this was the best Combined Ratio in 50 years. Does this mean that carriers are making a 15% profit off all written premium – not exactly, but the more the number decreases, the healthier the market becomes overall.

Many people in the workers comp world say the statistic means that carriers are writing policies at a 15% rate of profit. I usually do not dissuade that type of discussion.

One of the more interesting concepts is no one can point out the source of the Combined Ratio improving so much. Could it be the economy? Yes, possibly.

The best way to think of the inputs that caused such a positive effect originates from a combination of variables. As Work Comp is such as delayed-measuring system, the true source of the success may not be attributed to any group of factors for another five to ten years.

I marked a few more pages in the presentation. (You may want to download the PDF from the first link in this article.) They were:

Slide 20 – Changes in Medical Lost-Time – Claim Severity by Component. The utilization number has decreased to an almost no growth figure compared to 20 years ago.
Slide 32 – All states are reducing Loss Costs except Virginia Hawaii and South Carolina
Slide 33 – North Carolina reduced Loss Cost on 4/1/17 by –14.4% which was the largest reduction in the US.

Work Comp Combined Ratio Under 100 – First Time In Eight Years

May 20, 2015 By JL Risk Management Consultants

Work Comp Combined Ratio Under 100

The subject of Work Comp Combined Ratio seems to be appearing more in the insurance press lately. I was unable to attend the NCCI Annual Issues Symposium. However, I did make it to their data conference in March of this year.

One of the better definitions of the Combined Ratio can be found here.

Diagram Of Work Comp Combined Ratio Percentage

The combined ratio is calculated by taking the sum of incurred losses and expenses and then dividing them by earned premium. The ratio is typically expressed as a percentage. A ratio below 100% indicates that the company is making underwriting profit while a ratio above 100% means that it is paying out more money in claims that it is receiving from premiums. Even if the combined ratio is above 100%, a company can potentially still make a profit, because the ratio does not include the income received from investments.

The Work Comp combined ratio for all insurance carriers for 2014 was 98%. When a carrier is able to write WC insurance at some type of profit, this ensures a healthier market. According to the NCCI State Of The Line -see Slide 13 from the presentation – the Combined Ratio = (Loss + Loss Adjustment Expenses + Underwriting Expense + Dividends) / Earned Premium.

Insurers like to see that they do not have to rely on investment earnings to cover all the expenses of writing WC. Operational efficiency is a C-level buzzword that refers to the Combined Ratio.

The last time that a Combined Ratio came in under 1.0 was in 2006. The ratio that year was 93%. One has to remember that NCCI does not cover all states. They do cover just less than 40 states. This is a large enough percentage to reflect most, but not all of the WC market.

You may want to peruse all of the slides in the presentation. NCCI always performs a great job when it comes to PowerPoint slides.

California has not been below 100% on their Work Comp Combined Ratio since 2007. However 2014 had shown a great improvement. Check out the WCIRB Analysis here and then go to Exhibit 6 to see California’s combined ratio for the last few years. The 2014 year’s ratio was 105%.

The nightmarish years for California’s Combined Ratio was in the 1990’s when it exceeded 150%. The State Fund ended up with almost the whole market due to such heavy underwriting losses.