Many months ago, during the pandemic, I had predicted that a soft workers' comp market was a long tunnel with a small light at the end. 

James Moore

The carriers were going to become ultraconservative (not cherry-picking) by underwriting only extremely safe employers with a return to where the assigned risk pools and competitive state funds would carry the weight during a post-pandemic insurance world.

Well, I was wrong on that one. I was thinking globally that a U.S. Treasury investment selloff by China would cause pandemonium in insurance carrier investments. That variable is not finished yet with what seems like a banking crisis in China likely upcoming, which would rattle the investment and insurance markets.

What I did not see was the high profitability of the workers' comp line internally (return on investment) that would eventually place work comp as the profitable piece of business that supported the other lines of insurance.

Agency view

An insurance publication article from March of this year contained a great quote (no pun intended) from an agency that said:

“It’s a little longer for some states, but nationwide we’re on an eight-year soft market, which is probably the only line that is a soft market right now,” said Justin Dorman (Burns & Wilcox), workers’ compensation national product manager. “And really, it’s because workers’ comp is still profitable.

“It’s highly desired by most carriers, and most carriers are writing other lines of business and including work comp — requiring work comp — because it is profitable and allows them to write other business that may not be as profitable.”

Bottom line

I was looking at the external factors heavily in my thinking on a workers' comp soft market. What Justin said in the above passage shows that the IRR (internal rate of return) can sustain any insurance crisis and even unbelievably sustain carriers in writing other lines that are experiencing hard 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.