Work comp is still way overpriced, incredibly profitable, and the industry — defined as total revenues — is a lot smaller than it appears.

Joe Paduda

Those are my key takeaways from Chief Actuary Donna Glenn’s presentation just completed.

The National Council on Compensation Insurance has included data from most but not all states and payers; I suggest you pay more attention to overall trends rather than specific figures.

Premiums for private carriers were up just a bit last year, less than 2%. Not a surprise, as COVID was still rampant although shutdowns weren’t as prevalent, and employment was way up in 2021 compared to 2020.

Rates are down in pretty much every state except Hawaii (betting it's those damn physician dispensers in Hawaii).

Overall, premium rates dropped significantly last year, continuing what has become a nine-year trend. The drop was driven by a decrease of one-third in losses, almost all of which was offset by a 28% increase in payroll. Interestingly, “rate loss cost departures” — i.e., discounts — have grown significantly over the last few years.

Combined ratio was 87 — again, a hugely impactful continuation of eight years of underwriting gains. Comp, which used to be marginally profitable, continues to be a huge profit producer, which is why those “loss cost departures” are growing. Insurers know how profitable work comp is and know they can make bank even if they drop their rates.

Even better, NCCI projects accident year combined ratios will improve over time for 2020 and 2021. In contrast to reporting carriers’ initial forecasts, NCCI believes ultimate losses will be much lower. One can see that carriers’ predictions have consistently been much higher than their final loss ratios, and there’s still more room to decline.

Last year's 25% operating gain (!!!) is just the latest in a nine-year string of operating gains. 

Not surprisingly, carriers released a shipload of reserves last year. This reflects the disparity between what they initially report compared to what losses ultimately totaled. NCCI predicts there is more favorable development to come, as in a LOT MORE.

That said, NCCI indicated that reserves are still $16 billion too high.

Glenn kept referring to these results as evidence of work comp’s “strong financial position.”

I’d suggest that Glenn’s terminology, while directionally accurate, is burying the lede.

Which is this:

• Work comp rates are still way too high.
• Carriers are making way too much profit.
• The actual industry size is significantly smaller than today’s premium levels suggest.

What does this mean for you?

More consolidation, more rate-cutting and more growth for third-party administrators.

Joseph Paduda is co-owner of CompPharma, a consulting firm focused on improving pharmacy programs in workers’ compensation. This column is republished with his permission from his Managed Care Matters blog.