Key takeaways from the 2022 NCCI Annual Insights Symposium
Each year, the National Council on Compensation Insurance (NCCI), which gathers data, analyzes industry trends and legislation, and prepares insurance rate and loss cost recommendations for 38 jurisdictions, holds a symposium. Recognizing that the pace of change is accelerating and the business environment is shifting equally as fast, NCCI renamed it Annual Insights Symposium. The theme was Insights You Trust.
Here are highlights from the sessions:
State of the Line Report
- Private carriers posted a profitable calendar year 2021 combined ratio 87, the fifth consecutive year under 90.
- The line is healthy with a strong financial position.
- Lost-time claim frequency data suggests the long-term decline has continued, despite a rise in frequency in 2021. Since 2019, frequency declined slightly.
- The number of COVID-19 claims declined in 2021 relative to the prior year.
- Most COVID claims continue to be small. However, claims of more than $100,000 account for 1.2% of claims and 66% of losses. Nearly half of the most complex claims – those of more than $500,000 – involved workers who died.
- Workers Compensation reserves are robust. Reserves grew to $16 billion redundant as of year-end 2021.
- There are potential challenges ahead as medical costs could experience inflationary pressure.
State of the Line Q & A’s
Workers Compensation Catastrophes: Past, Present, and Future
- A catastrophe is defined as any single event with $50 million or more of workers compensation losses.
- The current catastrophe load in ratemaking is sufficient.
The Great Reshuffle
- Today’s labor market has more short-tenured workers, more remote workers, and a different industry mix of employment than before the COVID-19 pandemic.
- Short-tenured workers have a higher frequency of job-related injuries than full-tenured workers, and the difference in injury rates varies greatly across industries.
- The Great Reshuffle may lead to short-term frequency anomalies. However, it is not likely to cause a turn in the long-term frequency trend.
- Remote workers appear to have a lower frequency of job-related injuries than on-site workers, and this difference appears not to vary across industries.
- Changes in the industry mix of employment-especially employment shifts between lower and higher severity classes-can have complex effects on aggregate frequency.
Why wage inflation matters
- Payroll is a great exposure base because it is inflation sensitive. As wages rise, premiums automatically rise along with workers compensation benefits. Wages, premiums, and indemnity benefits typically stay in balance.
- Payroll increased more than 10% in 2021 – about 3% from employment and 7% from wages.
- The Great Reshuffle has happened fast. Low-wage workers are getting the largest pay increases. Workers are also shifting to higher-paying industries. The magnitude of this change may create some short-term disconnects between wages, indemnity benefits, and premiums.
- NCCI’s ratemaking process addresses benefit increases that may be greater than wage inflation.
Top 5 Ways COVID Changed the Economics of Workers Compensation – For Better or Worse
- Despite many analogies, today’s economy and operating environment for insurers couldn’t be more different from the late 1970s to early 1980s.
- A recession is increasingly likely but still avoidable.
- Extreme volatility in the investment environment is both an opportunity and a concern for insurers, especially in long-tail lines such as workers compensation.
- The economic reverberations from COVID will last years beyond the end of the pandemic itself.
A Conversation with Roger Ferguson on Inclusive Leadership
- Empathy may be the most important leadership trait. To get people to follow you, they must know you. Empathy is a force multiplier for leadership.
- Crises require leaders to show fortitude, leverage experts in the business, demonstrate empathy, and have clarity about goals.
- The potential for a recession is high but it may be relatively mild and short in duration.
- It’s not just about having diversity; you also need inclusion. Diversity is getting invited to the party. Inclusion is getting asked to dance.
The Medical Dilemma
- Medical inflation in workers compensation has been moderate for the past decade. But with the recent dramatic rise in consumer prices, concerns have emerged about medical inflation.
- Changes in medical claims costs are driven by two factors: the price of medical services and utilization, which measures the mix and number of services provided to injured workers.
- NCCI’s most recent data shows drug costs are declining, physician costs are up slightly, and facility costs are rising in the workers compensation system.
Human Factors: Expanding the Science of Predictive Analytics and Artificial Intelligence (AI)
- Human-machine hybrid intelligence is a better framework to guide practice than “AI.”
- The focus of hybrid-intelligence design is real-world results, not machine outputs.
- Hybrid-intelligence design goes beyond machine learning to consider human values, needs, and relative cognitive strengths and limitations.