Private workers compensation insurers were slightly less profitable in 2019 than their 2018 record, according to a preliminary analysis by the National Council of Compensation Insurance (NCCI). NCCI estimates the combined ratio – a measure of insurer profitability – for 2019 will be about 87 percent, the second-lowest in recent history after last year’s record-low 83.2 percent.
These results, reflecting the segment’s sixth consecutive year of underwriting profitability, are part of NCCI’s State of the Line Report—a comprehensive account of workers’ compensation financial results.
Workers’ compensation net premiums written (NPW) fell 3.9 percent in 2019, to $41.6 billion from $43.3 billion in 2018, the report says. Before 2018, cession of premiums to offshore reinsurers stalled NPW growth. But the Base Erosion Anti-Abuse Tax (BEAT) component of the Tax Cuts and Jobs Act of 2017 – which limits multinational corporations’ ability to shift profits from the United States by making tax-deductible payments to affiliates in low-tax countries – spurred NPW growth to almost 9 percent in 2018.
While the BEAT’s residual effect and the strong economy may place upward pressure on 2019 net premiums written, recent decreases in rates and loss costs are likely to more than offset these factors.
Changes in rates/loss costs impact premium growth and reflect several factors that impact system costs, such as changes in the economy, cost containment initiatives, and reforms. NCCI expects premium in 2019 to fall 10 percent, on average, as a result of rate/loss cost filings made in jurisdictions for which NCCI provides ratemaking services.
The State of the Line Report was presented at NCCI’s Annual Issues Symposium (AIS) in May.
The U.S. Federal Emergency Management Agency (FEMA) is being pressed to adopt innovative methods to increase insurance penetration for floods and other natural disasters. In a draft report, FEMA’s National Advisory Council suggests that in order to increase financial preparedness for householders and local governments, novel financial models must be considered. The report notably mentions parametric triggers as a way to grow the insurance markets and protect against future disasters. Blockchain is also recommended as a means to create a land and property registry stored off-site in a secure platform.
What are parametric triggers, and how can they help?
Parametric insurance is a type of insurance that agrees—before the triggering event—to make a certain payment, instead of compensating for the pure loss. Parametric insurance pays out immediately when a certain threshold, such as water depth or wind speed, is reached; thus, expediting funding and reducing overall administrative costs.
What does the future hold for this new model?
“When added to the ubiquitous nature of smartphones and other levels of connectivity, the opportunity for expanding parametric insurance protection to individual households may merely be a matter of connecting the dots, for which FEMA is uniquely placed to lead this effort,” the Council’s report states.
Indeed, the Council believes that FEMA should “look towards a new model of insurance” in an age when natural disasters increasingly threaten both public and private interests.
The draft report also includes many suggestions to improve disaster preparedness, such as better building codes and code compliance, better preparedness for Indian tribes and rural communities, building resilient infrastructure and increasing funding for mitigation.
To close the insurance gap the report recommends:
Educating the public about the benefits of flood renter’s insurance and hidden hazards in real estate, rental properties and communities.
Stress testing state insurance guaranty funds to determine if they can withstand large-scale disasters and insurer insolvencies.
Creating more offerings for state and local governments to reduce rates of self-insurance of infrastructure.
Cyberattacks on hospitals can lead to increased death rates among heart patients, recent research suggests. This research emerges as attacks on health facilities are reported to have increased 60 percent in 2019.
Researchers at Vanderbilt University‘s Owen Graduate School of Management drilled down into Department of Health and Human Services records on data breaches from more than 3,000 Medicare-certified hospitals. They found that, for facilities that experienced a breach, the time for suspected heart attack patients to receive an electrocardiogram (ECG) increased by more than two minutes.
When seconds count
The study focused on the impact of remediation efforts on health care outcomes following a data breach. It found that common remediation approaches, such as additional verification layers during system sign-on, can “delay the access to patient data and may lead to inefficiencies or delays in care.”
“Especially in the case of a patient with chest pain,” the report says, “any delay in registering the patient and accessing the patient’s record will lead to delay in ordering and executing an ECG.”
The researchers found that “a data breach was associated with a 2.7-minute increase in time to ECG three years after the breach.”
A bit over two minutes may not seem like much – but during a coronary or a stroke it can be the difference between life and death.
Vanderbilt’s research was based on data collected before ransomware attacks against health care facilities became common. The authors caution that such attacks – in which systems or data are held hostage until a ransom can be paid – “are considered more disruptive to hospital operations than the breaches considered in this study.”
The medical sector is the seventh-most targeted industry, according to a report by internet security firm Malwarebytes, based on data gathered between October 2018 and September 2019. But Malwarebytes warns that attacks on this sector are on the rise.
“Threat detections have increased for this vertical,” the report says, “from about 14,000 healthcare-facing endpoint detections in Q2 2019 to more than 20,000 in Q3, a growth rate of 45 percent.”
Comparing all of 2018 against the first three quarters of 2019, Malwarebytes said it has observed a 60 percent increase in such attempted intrusions.
“If the trend continues,” Malwarebytes reports, “we expect to see even higher gains in a full year-over-year analysis.”
For those still tiptoeing around whether the property insurance market is yet officially “hard,” two speakers at Advisen’s Property Insights Conference last week unabashedly used the “H-word,” and none of the 300-plus insurance and risk-management professionals attending seemed to disagree.
Gary Marchitello, head of property broking for Willis Towers Watson, was first to say it in an on-stage conversation with Michael Andler, executive vice president/U.S. property practice leader at Lockton Cos.
Andler concurred: “If it walks like a hard market and talks like a hard market, it’s a hard market.”
Some presenters during the daylong event quibbled over when pricing went from merely “hardening” to “hard”. Some said the hard market is eight quarters old, while others said it began as recently as the second quarter of 2019 – but no one piped up to deny it’s here.
Hard, soft, and why it matters
In a hard market, demand for coverage is strong, supply weak. Insurers impose strict underwriting standards and issue fewer policies. Consequently, buyers pay higher premiums. During soft markets, customers can negotiate lower prices as insurers compete for business. When the market hardens again, prices rise as insurers adjust rates at renewal.
Marchitello, with four decades’ experience, said this hard market is different: “With prices rising, you’d expect new entrants to the market. That is absolutely not happening.”
“It’s going to get worse before it gets better,” he added. “Two years of combined ratios above 100 have forced underwriters to drive profitability” rather than pursue market share, as many did during the soft market.
We brought it on ourselves
In a room packed with insurers, brokers, and buyers, one might expect some finger pointing for the dramatic price increases. I heard little to none.
“We as underwriters allowed it to happen,” said Erik Nikodem, senior vice president at Everest Insurance.
“We lost the script during the soft market,” said Michal Nardiello, senior vice president at CNA. “We pushed deals that weren’t sustainable in the long haul.”
And it wasn’t only underwriters accepting responsibility.
“I never turned down a lower rate” when the market was soft, said Lori Seidenberg, global director of real assets insurance for BlackRock. Not that she should have – but professional risk managers know a soft market isn’t going to last forever and need to plan accordingly.
Despite this admirable accountability, it’s important to remember larger forces have been at work. As CNA’s Nardiello put it: “There’s been a massive shift of wealth and people into areas prone to fire, tornados, hail, and flood” – perils that are themselves changing in frequency and intensity.
Also a factor is “social inflation” – rising litigation costs that drive up insurers’ claim payouts, loss ratios, and, ultimately, policyholder premiums. It’s been estimated that social inflation “could ultimately blow a $200 billion hole in global reserves.”
Carriers, customers, and brokers all acknowledged the need to do things differently. While much was said about using technology, data, and analytics to improve underwriting and reduce expenses, the dominant theme was communication. All parties recognized they must communicate early and often.
As Duncan Ellis, head of retail property, North America for AIG, put it: “Bad news doesn’t get better with time.”
“It’s important for brokers to get a handle on the data,” said Theresa Purcell, director of risk management for real estate giant Kushner. She also recommended that brokers “get creative. Suggest different structures. Educate us about other services” that might better suit individual customer needs.
Stephanie Hyde, executive director at P-E Risk, an insurance and risk management consultancy, echoed Purcell, adding that brokers need to “educate yourselves about all lines of coverage your clients need so you can understand what they’re going through.”
Maria Grace, vice president and chief underwriting officer for property and inland marine at Everest, urged brokers to “put us [underwriters] in front of your clients” to help them understand why prices are increasing and, where possible, offer more appropriate solutions.
A bill to reauthorize the Terrorism Risk Insurance Act (TRIA) of 2002 was passed on November 20 by the U.S. Senate Committee on Banking, Housing, and Urban Affairs. The unanimous decision was made only a day after the U.S. House of Representatives voted to renew the federally backed terrorism insurance coverage backstop program, which is set to expire in December 2020.
The bill includes a provision to study cyber terrorism and the availability and affordability of coverage, specifically for places of worship.
“The bill being considered today would not only avoid significant uncertainty in the marketplace, but it also preserves the taxpayer reforms included in the last reauthorization,” said Senate Banking Committee chairman Mike Crapo (R-Idaho) in a statement.
The 2015 reauthorization “required the private insurance industry to absorb and cover the losses for all but the largest acts of terror”, Sen. Crapo said. This included requiring total insurance industry insured losses for certified acts of terror to exceed $200 million before federal assistance would become available and increasing the industry’s aggregate retention amount to $37.5 billion.
The decision was met with resounding approval from insurance industry representatives and other stakeholders.
The next steps are for the Senate Banking Committee version to be approved by the full Senate, any differences between the two measures (which are said to be virtually identical) to be reconciled, and the final bill to be signed into law by President Trump.
Jimi Grande, senior vice president of government affairs at the National Association of Mutual Insurance Companies (NAMIC) said, “With passage of TRIA reauthorization legislation out of the House on Monday, today’s unanimous passage of an identical bill out of the Senate Banking Committee demonstrates that there is little daylight between the two chambers or between the two sides of the aisle. There is no reason Congress shouldn’t be able to get a bill to the president’s desk by the end of the year.”
To get an idea of what could happen without a government terrorism backstop we’ve been searching our database for news items that appeared in the aftermath of the terrorist attacks on September 11, 2001, before the federal program was in place. Below is an abstract citing a Wall Street Journal article about the impact on workers’ compensation. This line would be one of the most affected by a lack of a backstop because, unlike other insurance lines, workers’ compensation insurers have no choice but to include terrorism coverage in their policies.
Colorado State University’s Department of Atmospheric Science released a summary of the 2019 Atlantic hurricane season today.
The 2019 season yielded 18 named storms, six of which became hurricanes, including three major ones (Category 3 or higher, with maximum sustained winds of at least 111 mph). While 18 is quite a bit more than the seasonal average of 12 , seven of the named storms lasted 24 hours or less – the most on record with such short longevity.
“The season ended up slightly above average when looking at integrated metrics, such as accumulated cyclone energy, that account for frequency, intensity and duration of storms,” said Dr. Phil Klotzbach, research scientist in the Department of Atmospheric Science, non-resident scholar at the Insurance Information Institute (I.I.I.), and lead author of the report. “We generally forecast a near-average season, so we slightly under-predicted overall levels of Atlantic hurricane activity.”
Dorian: most destructive
Of the three major hurricanes, Dorian was the most destructive. Forming in late August, it devastated the northwestern Bahamas at Category 5 intensity, causing over 60 fatalities and economic losses that could be as much as $7 billion, according to a recent Artemis report. It then made landfall near Cape Hatteras, North Carolina, as a Category 1 hurricane and later caused significant damage in the Atlantic Provinces of Canada. Insurance broker Aon estimates the economic value of the damage Dorian inflicted on the United States at approximately $1.2 billion.
Hurricane Humberto, forming in September, caused much less damage than Dorian, as it remained hundreds of miles offshore. Nevertheless, it caused large swells across the U.S. East Coast and resulted in one fatality when a man drowned due to a rip current in North Carolina. Another man was reported missing in St. Augustine, Florida after the storm. Bermuda officials reported that no fatalities occurred on the island during Humberto’s passage.
Hurricane Lorenzo became a Category 5 hurricane in the central subtropical Atlantic – the farthest east Cat 5 Atlantic formation on record. It generated 49-foot waves, with an occasional rogue wave nearing 100 feet, sending swells to both sides of the Atlantic. Lorenzo caused 10 fatalities.
She nearly didn’t get a name
The most destructive storm to hit the continental United States in the 2019 season almost didn’t have a name. Two hours before dumping 40 inches of rain in some parts of Texas, Tropical Storm Imelda was just “a tropical depression,” Dr. Klotzbach said. Imelda was upgraded to a named storm 90 minutes before landfall, but it proceeded to deluge southeast Texas, causing at least $2 billion in economic damage and at least five deaths, according to Aon.
“From a wind perspective, Imelda was practically a non-event,” Dr. Klotzbach continued. “But the rain it brought made it the most expensive tropical cyclone to hit the United States during the 2019 season.”
The 2019 Atlantic hurricane season began on June 1 and ends officially on November 30. Colorado State’s full summary and verification report is available here.
By Max Dorfman, Research Writer, Insurance Information Institute
As the opioid epidemic continues to roil the country, it’s easy to forget the number of issues that contribute to its severity. Indeed, for workers injured on the job, compensation can include opioid treatments—which can lead to opioid dependence. With this subject in mind, I spoke to Dr. Vennela Thumula, an author and policy analyst with the Workers Compensation Research Institute (WCRI), who was able to provide insight into opioid dispensing for injured workers.
This interview was modified for clarity.
What are you seeing as far as general trends in prescribing opioids for workers injured on the job, particularly as the opioid epidemic has become a more visible issue?
Our study – Interstate Variations in Dispensing of Opioids, 5th Edition – examined recent trends in opioids dispensed under workers compensation for workers from 27 states who had more than seven days of work loss due to their injury but who did not have a major surgical procedure related to the work injury.
Opioid dispensing to injured workers has decreased substantially in recent years in all 27 state workers’ compensation systems studied. Between 2012 and 2016 injuries followed for an average two years postinjury, the percentage of injured workers with prescriptions receiving opioids decreased by 8 percentage points (in Illinois) to 25 percentage points (in California). Among injured workers receiving opioids, the average morphine milligram equivalent (MME) amount of opioids dispensed per worker in the first two years of a claim decreased in nearly all study states, with 30 percent or higher reductions seen in 20 of the 27 states studied.
Which states are you still seeing higher-than-average prescribing rates for workers injured on the job? Why do you think these states are still seeing such high rates?
After the declines, opioid dispensing continues to be prevalent in some states. At the end of the study period, the percentage of injured workers with prescriptions receiving opioids ranged from 32 percent in New Jersey to 70 percent in Arkansas and Louisiana across the 27 states, and the average MME per worker in Delaware, Louisiana, Pennsylvania, and New York continued to be the highest among the 27 study states.
For instance, in Delaware and Louisiana, the average MME per claim was more than three times the amount in the median (middle) state and over five times that in the state with the lowest amount, Missouri. We should note that although New York is among states with the higher-than-typical amount of opioids, there were substantial decreases in opioids dispensed to New York workers over the study period. We should also caution that these four states have implemented other opioid reforms towards the end or after the study period whose impact could be monitored with more recent data.
I see non-pharmacologic treatments are being used more often for workers injured on the job. What are the most common non-pharmacologic treatments utilized under workers’ compensation?
We see that providers have switched from multi-pronged pain treatments, which involve pain medications (including opioids) and other restorative therapies, to a treatment protocol that more frequently relies solely on non-pharmacologic services. The most frequent non-pharmacologic services billed and paid under workers compensation were physical medicine evaluation; active and passive physical medicine services such as electrical stimulation and hot and cold therapies; and passive manipulations such as manual therapy and massage.
How are these non-opioid pain treatments changing the landscape of workers’ compensation for patients and insurance companies? Are these treatments now prioritized over opioids?
Our first look at the data suggests a shift in treatment patterns away from opioids to non-pharmacologic services, which conforms to the recommendations of opioid prescribing and pain treatment guidelines and policies implemented in a number of states. Many questions remain answered, including the impact of these changing treatment patterns on claim outcomes. We will be talking more about alternatives to opioids for pain management at WCRI’s 36 Annual Issues & Research Conference, March 5 and 6, 2020, in Boston, MA.
Insured losses associated with 2018’s Hurricane Michael reached almost $7.44 billion, according to a recent Florida Office of Insurance Regulation (FOIR) update. The losses consist of residential and commercial property, private flood and business interruption insurance, and miscellaneous coverages. There were 149,773 claims made, and 89 percent of them were closed.
Hurricane Michael became a Category 5 storm on October 10, 2018, and made landfall near Mexico Beach, Florida, in the Florida Panhandle. It was the strongest hurricane to ever hit the Florida Panhandle and the second known Category 5 landfall on the northern Gulf Coast, according to the National Oceanic and Atmospheric Administration. It was the first Category 5 storm to make landfall in the United States since Hurricane Andrew in 1992.
An Artemis analysis of the FOIR report says that based on the run-rate of costs per claim (around $65,890 per claim), another $1 billion could be added to the total before every claim is closed down and that many of the claims remaining open will be among the more costly. Fewer than 69 percent of commercial property claims are closed, compared to almost 89 percent of residential. Business interruption claims are also slow to close and therefore are likely to increase the total.