Workers comp is:

• 

  Joe Paduda

  A) hugely profitable.
• B) way over-priced.
• C) even more profitable than it looks.
• D) by far the most profitable P&C insurance line.
• E) not suffering from medical cost increases.
• F) a highly mature industry with all the attributes thereof.
• G) shrinking as claim frequency continues the 20-year trend averaging -3.4%.
• H) the financial savior of multi-line carriers.
• I) all of the above.

The answer is all of the above.

NCCI’s Annual Issues Symposium provided a deep dive into the industry’s financials, and the industry is swimming in a lake of profits.

With a net combined ratio of 86%, comp is HUGELY profitable, especially when one considers the industry is over-reserved to the tune of $18 billion. But wait: When you add investment income, private carriers' pre-tax operating profits are a whopping 23%.

This means premiums are still far too high, employers are still paying far too much for WC insurance, and insurers are sitting on $18 billion that should be returned to policyholders.

This is despite ongoing premium rate reductions in every state.

Oh, and medical inflation is less than overall inflation at a paltry 2%.

Amidst all this sunshine and rainbows, there’s one troubling trend: facility costs —specifically, ambulatory surgical center and outpatient, which is the only category showing an increase in the share of medical spend. 

As CompPharma has reported, drug spend has been trending down for years — and now accounts for just 7% of total WC medical spend — down from 12% in 2012.

What does this mean for you?

For employers, lower rates — MUCH lower rates. And big dividends if your carrier is a mutual.

For insurers, invest those profits in technology now. Workers’ comp and the P&C industry as a whole are waaaay behind in tech. Now is the time to invest, because this will not last.

Joseph Paduda is the principal of Health Strategy Associates, a consulting firm focused on improving medical management programs in workers’ compensation. This column is republished with his permission from his Managed Care Matters blog.