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Moore: Hard or Soft Market? It May Not Matter

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My brother asked me this question: Will the upcoming election affect the workers' comp markets? He is a day trader of sorts.

James Moore

James Moore

Writing articles for over 15 years means that I have covered this topic in the past. My opinion has not changed over the years on the workers' comp markets. 

Investment trends affect comp markets 

Carriers were making a 15% return on every workers' compensation dollar written. This figure came from the National Council on Compensation Insurance, so I consider it trustworthy. The pre-pandemic combined ratio was 85%.   

Insurance carriers did not have to rely on investment returns for profit. The workers' comp press published many articles recently on the market hardening due to COVID-19. I agree with that assessment. 

Premium vs. profitability 

If insurance carriers can make profits by investing in solid and speculative investments, then the need for premium increases subside over time.   

If carriers cannot generate profit off investments, then the market will harden quickly.  Where does any carrier have to look for funds if its investments do not perform well?  The two areas are premium increases and becoming more conservative in underwriting insureds — or a combination of the two. 

Carriers also have investment/financial advisory arms that I am not considering when I cover profitability. 

Strange times defy investment trends

The economy may be sputtering presently. The stock markets are extremely healthy (for now). What does this mean for future investments?   

The market plunged in March 2020 but has recovered most of the losses. Investment profits are back in play for now. 

We also cannot forget China’s effect on the overall investment markets. China still owns a large amount of U.S. federal securities. 

From this article on MSN/Quartz:

Beijing could use its stockpile of U.S. Treasury bonds to destabilize the U.S. economy and pressure Washington into backing down.

COVID-19’s effect on workers' comp markets

The long-term effect will not be known for quite some time. I recently published an article on how the delayed effects of COVID-19 may not be realized until mid-2021.

The workers' comp system is a delayed system. Only approximately 5% of the data has been reported to the rating bureaus. Most of the coronavirus’s effects on workers' comp will not be known until the end of 2021 or after.  

Bottom line: Election cycle and workers' comp markets 

When I write the bottom line sections, I usually prognosticate an opinion. This subject remains a tough one to call. Will workers' comp benefit from a Republican or Democratic win in the presidency, House or Senate? 

The workers' comp markets, by nature, are localized as each state (good or bad) influences the markets.  

The House and Senate races will likely have an effect on each state’s local workers' comp laws and rules. The presidential election may have a minimal effect — that being whether investors remain comfortable in the investment markets. 

I apologize as I do not have a definitive answer on this one. In 2020, too many other influences have come into play that may affect the workers' comp markets. 

This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.

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