San Francisco, CA June 26, 2012 – The WCIRB has released its report on workers’ compensation losses and expenses for 2011. The report is prepared annually pursuant to Section 11759.1 of the California Insurance Code.
Among the findings included in the report:
Medical losses paid in 2011 were $4.4 billion, or 60% of total loss payments. Of these payments, $1.5 billion were paid to physicians for medical treatment, $1.1 billion were paid to hospitals, $1 billion were payments made directly to injured workers (mostly for future medical), $0.4 billion were paid to pharmacies, and $0.2 billion were paid for medical-legal reports.
The total cost of medical cost containment programs in 2011 was $384 million. This compared to $356 million in 2010 and only $197 million in 2005.
Indemnity benefits paid in 2011 were $3.0 billion, or 40% of total loss payments. Of this amount, temporary disability benefits paid totaled $1.5 billion and permanent partial disability benefits paid totaled $1.2 billion.
Total insurer losses incurred in calendar year 2011 were $7.7 billion, or 74% of calendar year premium. In calendar year 2010, total insurer losses incurred were $7.1 billion.
Total loss adjustment expenses incurred in calendar year 2011 were $2.6 billion, up from $1.9 billion in 2010. Both allocated and unallocated loss adjustment expenses increased sharply in 2011.
The combined loss and expense ratio for calendar year 2011 was 122%. In calendar year 2010, the combined loss and expense ratio was 117%.
To view a copy of the report, click the link below. WCIRB Expenses and Losses Report: 2011
Employers in California are going to be very unhappy with the mid-year workers’ comp rate filing the Workers’ Compensation Insurance Rating Bureau is about to make. It will soon file for a 9.1% average increase. This is over and above the 37% rate increase that Insurance Commissioner Dave Jones approved for January 2012. The filing will come in at an average rate of $2.51 per $100 of payroll compared to the $2.33 for last year.
The amount is 7.7% above what the Bureau filed last year. It says the increase represents deterioration in the system that is largely tied to the 2010 accident year. The actual increase to rates being used by carriers, however, is likely to be lower since carriers have been steadily increasing their filed rates. Stay tuned for additional coverage.
This week, the Workers Compensation Insurance Rating Bureau published the approved rates and associated percent change for CA work comp codes. Have a look at the attached sheet and find your codes. Never a better time to implement a new health and safety program and keep those claims down! WCIRB Rates Percent change for 2012
SAN DIEGO – A San Diego City Council committee wants the City Attorney’s Office to evaluate a possible ordinance under which an apartment-dwelling smoker could be punished if someone else in the building objected and possibly evicted if the smoker did not stop.
The Smoke-Free Housing Task Force pitched the idea to the council’s Public Safety and Neighborhood Services Committee, which forwarded the idea to lawyers for the city. http://www.fox5sandiego.com/news/kswb-smoking-in-apartment-could-be-outlawed-20120215,0,7398786.story?track=rss
Buoyed by a rising economy, but facing pressures of low investment rates, professional liability insurance rates are beginning to harden, according to featured speakers at the Professional Liability Underwriting Society’s D&O Symposium.
“It’s not a hard market yet, but it’s headed in that direction for the first time since 1999,” said Jay Gelb managing director of Barclays Capital, who spoke Feb. 8 at a panel.
David McElroy, president of financial and professional liability products for Arch Insurance, said when the economy grows, so does business. “We are completely tethered to the economy,” McElroy said.
When companies see their assets rising, they buy more insurance, said Brian R. Meredith, managing director of UBS Securities. “What drives sales is gross domestic product,” he said.
Insurers are paying more attention to pricing and underwriting because interest rates, and investment income, are so low, Meredith said.
That wasn’t always the case. McElroy said from 2003 to 2007, “if you were breathing, you made money.”
But with investment returns hovering at about 3%, companies have to write more profitable business to reach their financial goals today, he said.
For instance, a 95 combined ratio in 2004 would have resulted in a 15% return on equity. To get that same 15% ROE today, companies have to produce a combined ratio of 87 to 88, McElroy said.
“It’s difficult to translate that knowledge from the CEO to the underwriting level,” McElroy said.
Gelb agreed that companies used to be able to win a 10% ROE, “just by showing up. You just can’t do that anymore.”
He said for every 1% decrease in investment income, companies must make up 2.5 points in their combined ratio.
But, he warned if companies maintain a too conservative approach in their investing, it could lead to missed opportunities.
Eric J. Andersen, chief executive officer with Aon Risk Solutions, Aon’s U.S. retail arm, said the market is a dichotomy. Insurers will push hard for price increases on renewal business, but tend to be more competitive on new business that they are trying to woo away from other carriers.
“As long as that gap exists, it is a soft market. But for the first time, in the fourth quarter, we actually started to see that gap narrow,” Andersen told Best’s News Service after the panel.
Even though D&O is a single product, it’s divided by segments, he said. For instance, private or nonprofit companies still find insurers competing for their business, but large public companies are finding the market more difficult.
While there may be 50 or 60 companies in the D&O marketplace, for very large Fortune 500 companies, the market has narrowed to just five to 10 players, Andersen said.
For difficult segments such as financial institutions and pharmaceutical companies the market is even smaller.
But there’s more competition in the excess layers, as companies from Bermuda, London and the United States are looking to capture market share, Andersen said. “The primary market has already firmed; the excess market is now catching up,” he said.
Insured companies are more likely to diversify their insurance by turning to multiple carriers today, Andersen said.
“It’s what we call the AIG effect,” Andersen said. “People learned in 2008 that you need a couple of good relationships instead of one big one. You need to spread out, diversify.”
Every recent very hard market1986, 1992 and 2001was formed after a number of insurers fell into insolvency said Michael C. Sapnar, president and CEO of Transatlantic Holdings.
“It’s never just one event,” Sapnar said during the panel discussion. “And it has to be companies that have holes in their balance sheets.”
While the number of financial impairments of property/casualty companies continues to accelerate, A.M. Best’s analysis shows the primary cause of impairments was a combination of deficient loss reserves and inadequate pricing.
P/C impairments increased to 28 in 2011 from 21 in 2010, according to an A.M. Best special report. That includes 10 additional 2010 impairments recorded since A.M. Best published its 2010 study last year. P/C impairments have been on a steady upward trend since the record low of five impairments in 2007, which represents the fewest number of impairments in the 43 years that A.M. Best has done its impairment study (Best’s News Service, Feb. 2, 2012).
Another challenge facing the industry today is the growing sophistication and accessibility of information. Clients may know about losses elsewhere, but don’t feel responsible to pay more for their own insurance as a result, Andersen said.
“It’s made it hard to spread risk,” Andersen said during the panel. “You’re not going to find U.S. businesses willing to pay for losses in Thailand.”
Arch Insurance Group’s subsidiaries currently have Best’s Financial Strength Ratings of A+ (Superior). Transatlantic Holding’s subsidiaries currently have Best’s Financial Strength Ratings of A (Excellent).
A video with excerpts from interviews with Eric Andersen of Aon Risk Solutions and David McElroy of Arch Insurance is available at http://www.ambest.com/media/MA.asp?vid=plus212
The following attachment is a compilation of the last six months of major EPLI settlements arranged by Kaufman Borgeest & Ryan, LLP. Claims range from discrimination, wrongful termination, whistleblower, etc. and settlement amounts go as high as $75 million per employee!
Large Loss EPL Table December 2006 to 2011