Buyers Fear Stiff Workers’ Comp Pricing

Rising medical costs and terrorism fears are a recipe for rising workers’ compensation insurance costs for corporations.

In their company’s most recent spate of insurance renewals, many CFOs found workers’ compensation the toughest line of insurance coverage to buy at the right price. To deal with the stiff pricing and underwriting of such coverage, some have been focusing on keeping claims down. But with the market hardening, such efforts may have little impact on rates.   

Indeed, 53 CFOs, or 37% of the 146 finance chiefs responding to a question in a CFO.com insurance-renewal survey in February and March said their company faced the toughest sledding in workers’ comp.  Perhaps counterintuitively, especially during a period when heavy weather has been hitting corporate-owned property hard, that was 11 percentage points more than the portion of respondents who found reasonably priced property/catastrophe coverage hardest to obtain. (See Figure 1, below.)

The sharp rise in workers’ comp premiums stems from a number of factors that have made insurers wary of writing the business. In a keynote speech at the Advisen Casualty Insights Conference in March, David Bidmead, chief executive officer, United States, of Marsh, a big broker, noted that price increases for workers’ comp are predominantly driven by the “unrelenting movement in medical costs as a percentage of the overall claim.”

Further, carriers are “reassessing their overall appetite” for risk and, more specifically, their yen to take on aggregations of risks in concentrated urban areas, partly because they fear the federal government may cut its involvement in backing terrorism coverage, including workers’ comp, according to the insurance-brokerage executive.

Another reason for uncertainty in the workers’ comp market is new, more stringent capital models that are curbing carriers’ risk appetite and hence their renewal positions, Bidmead said.

Lining up with those scenarios is a general relative pessimism of finance chiefs about workers’ comp insurance costs. On their company’s next renewals, 32% of finance chiefs expect workers’ comp to be the toughest insurance line to negotiate. But they do expect the gap to narrow between it and property/catastrophe coverage. (See Figure 2, below.)

One takeaway from comments made by finance chiefs responding to the CFO.com survey may be that small-to-midsize businesses (the survey included CFOs working for companies in the $10 million to $500 million in annual revenues range) are finding it tougher to get workers’ comp coverage that reflects their company’s workers’ comp claims experience than bigger companies — with greater financial and safety resources at their disposal — may find it to be.  

One finance chief of a manufacturer in the $50 million to $99.99 million revenue range who delegates insurance buying to the company’s broker, for instance, cited “brutal [workers’ comp] price increases that don’t align with our experience modification.”

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