2016: Record Profitability in Workers' Compensation Insurance - Strategies for Continued Success
In this study, Conning presents an overview of the current state of the workers’ compensation market, which in 2015 delivered its most favorable underwriting results in decades. Informed by a survey of industry executives and peer analyses of workers’ compensation insurer performance, the study separately reviews national multiline insurers, specialist workers’ compensation insurers, regional insurers, and state funds. Further, the study identifies key success factors and future challenges for workers’ compensation insurers.
2. Executive Summary
3. Workers’ Compensation Market Conditions
- Historically Favorable Workers’ Compensation Underwriting Results in 2015
- Workers’ Compensation Insurance Rates and the Cycle
- Superior Workers’ Compensation Operating Ratio
4. Conning Workers’ Compensation Survey
- Survey Response Demographics
- Company Differentiation
- Near-Term Workers’ Compensation Strategy
- Long-Term Success Factors
5. Peer Comparison and Winning Profiles
- State Funds
- National Multiline Insurers
6. A Closer Look at State Funds
- Distinguishing Features of State Funds
- State Fund Premium Growth
- State Fund Role
A. Additional Workers’ Compensation Specialists with <100% Long-Term Combined Ratio
B. Workers’ Compensation State Direct Loss Ratios
C. Survey Quote
IntroductionIn 2015, the workers’ compensation insurance line reported one of its best results in four decades. A loss ratio of 68.4%, a combined ratio of 95.4%, and an investment income ratio (allocated) of 17.7% made for outstanding performance. In 2016, however, there are signs that workers’ compensation results are deteriorating, consistent with the line’s historical cyclicality. Some of the forces driving worsening results appear inexorable, rooted in competitive pressures, regulatory developments, and economic conditions. External factors and the market cycle notwithstanding, workers’ compensation insurers do not move as a pack. There is a wide performance gap separating long-term outperformers from underperformers. Differences in results are rooted in strategy and execution in the marketplace. Who are the industry’s best performers? What are their strategies? This study explores these two key questions.
Our exploration of successful workers’ compensation strategies is two-pronged. We present detailed results from the 2016 Conning Workers’ Compensation Survey. The survey represents primary research into a large, representative cross-section of workers’ compensation insurers sharing their insights on company strategy and issues having an impact on the industry. Respondents to the survey included executives from national multiline insurers, regional insurers, state funds, and specialized workers’ compensation writers.
We then identify long-term outperformers among the largest workers’ compensation insurers emerging from a peer comparison of ten years of data. The peer comparison examines national multilines, regionals, state funds, and specialists separately. We present profiles of the best-performing workers’ compensation insurers in each of the four peer groups, focusing on their approach to the workers’ compensation market to find similarities shared by the outperformers.
The study also presents an overview of current trends and developments at workers’ compensation state funds. State funds account for more than 25% of the overall U.S. workers’ compensation market. Although state funds’ market share has shrunk in recent years, mainly due to a larger role for the private market in California, many state funds are experiencing strong growth and continue to play a leading role in their respective states. Several state funds are undergoing structural change, so we explore current strategy and performance issues at state funds to glean insights into the broader workers’ compensation market.