Workers Compensation Insurance Rates Under Stress From 2011 Results

2011 was a tough year for most insurance companies out there.  This is mostly due to the more than $50 billion in property related claims from storms and bad weather events all across the country.  Of course workers compensation claims are not much affected by weather events, yet the 2011 numbers for the workers compensation insurance industry are not good.  And when the insurance industry loses money, that almost always portends higher rates for business owners in the near future.  This article will highlight some of the bad numbers that point to higher workers compensation insurance rates for the coming year.  Then I will show you how you can avoid facing higher rates this year for your business.

First look at some of the numbers.  In 2011, there was a 3% increase in the frequency of lost time claims.  These are claims where the insurance company is paying the injured worker a salary while the worker recovers from an injury.  3% may not sound like much, but this is the first time since 1997 that this measure increased from the previous year.  Is this a one-time blip or a signal for changes ahead in workers compensation lost time claims?  I think it may be the latter.

Compounding this problem is the unsettling result that net written premium for the insurance companies declined by 1.3% in 2011.  Now it doesn’t take a genius to understand that when claims are going up and premiums are going down something has to give somewhere.  I believe the breaking point will be the rates that you pay for your work comp insurance policy.  Insurance companies measure the money that they take in against the money that they pay out for claims.  This calculation is referred to as a loss ratio.  If the loss ratio rises above 100%, then the insurance company has lost money.  In 2011 the industry wide loss ratio for workers compensation insurance in the U.S. increased to an astonishing 118.1%.  This is the highest level since the year 2000 when it was 121%.  This means that in order to break even, the insurance companies need to average 18.1% return on the money that they hold while waiting to pay claims.  There are not many places where you can find a safe 18% return out there.

So what is the cause of these deteriorating results?  There are several of course, and none of them seem to show any signs of letting up in the near future, which is why I am predicting higher workers compensation rates across the board.  The biggest elephant in the room is the rising costs of medicine which now accounts for 60% of the workers compensation total claim payout.  With medical inflation running at 6% this part of the problem is going to be with us for the long haul.  Poor economic conditions are also a factor as there is a greater tendency for fraud in bad economic environments.  Also, the work force is getting older and more obese each year and this puts a strain on the claims costs both from a frequency of loss and a severity of loss perspective.

So what can you do to keep your work comp rates as low as possible in 2012 and beyond?  I suggest that you begin by taking a good look at your work comp policy and your work comp insurance company.  There is a growing market segment of work comp only companies out there today. These are companies that specialize in workers compensation only.   They don’t write auto insurance or home insurance or life insurance, they write only workers compensation insurance.   These companies understand that to make money in this business and to keep rates low for their customers, they need to be much more proactive in the prevention of claims as well as the recovery process.  They typically have loss control programs that can help you prevent claims from happening.  They often have nurses and claims case workers on staff to double check all medical bills for errors and fraud and to help your injured worker heal and get back to work as quickly as possible.

At Clinard Insurance Group we want all insurance buyers to be informed insurance consumers.  We can help connect you with a specialized workers compensation insurance company so that your rates can remain lower even while your competitors face huge workers compensation insurance rate increases.  If you have questions about your work comp insurance, or if you would like a quote to see just how much you can save on your workers compensation insurance, please give us a call, toll free, at 877-687-7557.  We look forward to hearing from you soon.