Workers' compensation premiums continued to drop as regulator-imposed decreases in loss costs and competition have maintained the soft market.
The industry experienced a combined 2.2% year-over-year drop in direct premiums earned in the third quarter, according to an S&P Global Market Intelligence analysis. The top 20 workers' comp writers posted a decline of 1.7% in the same period.
A decade-plus run of declining loss costs and heightened competition have applied downward pressure on rates, according to Jonathan Drummond, Willis Towers Watson PLC's head of casualty broking in North America. Health and safety training are reducing hazards and cutting down on the time employees miss work due to accidents and injuries, Drummond said.
"Across the board we see clients [reducing] their frequency and rate of exposure," he said in an interview.
A third-quarter survey by The Council of Insurance Agents & Brokers found that some carriers are discounting workers' comp rates as a way to offset increases for other business insurance lines experiencing elevated loss costs.
Rate cuts have actually been less frequent of late, which could mean stabilization in the coming years, Drummond said. The S&P Global Market Intelligence analysis shows that the industry's direct incurred loss ratio ticked up to 45.95% in the third quarter from to 42.30% a year earlier.
While the loss environment is still benign relative to historic numbers, the increased use of medical technology could start driving severity in workers' comp expenses, Drummond said. Medical advances have helped people heal faster and get them back to work more quickly, but it is expensive, the broker said.
"An injury that might have cost X amount of dollars, now costs X-plus because they're deploying new technology," he said. Interest rates, which have been dampening insurers' investment yields, are more likely to stabilize workers' comp premiums than any loss trends on the horizon, he added.
The National Council on Compensation Insurance, which recommends premium rates to state regulators, is forecasting an increase in the private carrier combined ratio to 87% for 2019 from 83% in 2018. The organization recorded a spike in "mega claims" of more than $10 million in 2016 but that number has since declined, indicating that year was just particularly volatile.
If inflationary costs were to drive up losses suddenly, workers' comp is a line with the flexibility for insurers to respond quickly, Drummond said.
Travelers Cos. Inc. ranked first on the S&P Global Market Intelligence table for workers' comp writers by direct premiums earned in the third quarter. The line is Travelers' largest among its business insurance offerings, and the company believes its scale will see it through the soft rate market, Chairman and CEO Alan Schnitzer said in September.
"We've got competitive advantages ... in terms of risk selection, in terms of segmentation, in terms of claims handling," Schnitzer said during a conference presentation, according to a transcript of his remarks. "We've got 500 nurses that are managing this line for us."