We All Saw It Coming. Work Comp Deteriorating

Fitch has announced that they highly doubt that the industry work comp combined ratio will come in under 110. Thats right , they are expecting higher than a 110 combines for the work comp line of business. Well, this is to be expected after the last 5 years of under priced policies that we all experienced. In my State of Delaware the rates were reduced and even rolled back to the point that they were unsustainable. All over the country this was happening and the soft market competition just added fuel to the fire. Now insurance companies are bleeding red ink on work comp. It is expected to get worse over the next two years as reserves were inadequate to cover the "chickens" that have now come home to roost. Most companies are foolishly trying to get all thier premium back in one full swoop with double digit work comp rate increases. Well this strategy won't work because one, clients can't afford it in a recession economy, two, there are companies out there still underpricing comp, and three, the health insurers are increasing rates too so there is nothing left in the money pile to pay comp. Clients will just keep shopping until they find comp rates that they can pay or downsize payroll which regardless of what we may hear on the TV, is still occurring.
A wise old insurance man told me when I was a young broker, "the insurance business is the only industry that does not know how to price their product".  I believe this to be true but not from ignorance of actuarial science but of ignorance to the by- product of competition.  Competition is good but if not held in check can push results in the "bad apple" pile. Lets hope that the industry can learn a lesson from this and price more appropriately in the next soft market. In my opinion, I doubt it!
Until next time be careful out there and know your risks. K

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