Mega-Trends Influencing the Workers Compensation Insurance Industry 5th Annual National Workers’ Compensation Insurance ExecuSummit New York, NY February 5, 2008 Steven N. Weisbart, Ph.D., CLU, Vice President & Chief Economist Insurance Information Institute 110 William Street New York, NY 10038
79
Embed
Mega-Trends Influencing the Workers Compensation Insurance Industry 5th Annual National Workers’ Compensation Insurance ExecuSummit New York, NY February.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Mega-Trends Influencing the Workers Compensation
Insurance Industry
5th Annual National Workers’ Compensation Insurance ExecuSummit
New York, NY
February 5, 2008
Steven N. Weisbart, Ph.D., CLU, Vice President & Chief EconomistInsurance Information Institute 110 William Street New York, NY 10038
p Preliminary AY figure. Includes dividends to policyholdersAccident Year data is evaluated as of 12/31/2006 and developed to ultimateSources: Calendar Years 1994-2005, A.M. Best Aggregates & Averages; Calendar Year 2006p and Accident Years 1994-2006p based on NCCI Annual Statement Analysis.
Workers Comp Underwriting Results: A Tale of Two Trends
WC insurers lopped 25 points off the combined ratio in
Investment Gains Have Improved Workers Comp Profitability
Source: NCCI
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
94 95 96 97 98 99 00 01 02 03 04 05 06p
Pre-Tax Operating Gain Ratio Adjusted Combined Ratio*
WC Investment Income Has Been Less Helpful Lately in Producing Profits
* Adjusted Combined Ratio (ACR) translates combined ratio into typical percentage terms. For example, a combined ratio of 107.0 becomes a -7.0% ACR. Source: NCCI
As u/w results strengthened, investment
results weakened, producing only a modest
operating gain ratio
Mega-Trend #1:
Falling Lost-Time Claim Frequency
and Falling Fatality Rates
Year over Year Change in Number of Lost-Time Claims
-4.2 -4.4
-6.9
-4.5 -4.1 -3.9
-6.8
-9.2
0.3
-6.5
-4.5
0.5
-3.9
-2.3
-4.5
-6.6
-10
-8
-6
-4
-2
0
2
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06p
Accident Year
Percent Change
Workers Comp Lost-Time Claim Frequency Down Over 50% Since 1991
1991-2005: Based on data through 12/31/2005, developed to ultimate. 2006p: Preliminary based on data valued as of 12/31/2006.Based on the states where NCCI provides ratemaking services. Excludes the effects of deductible policiesSource: NCCI
Rate of Fatal Work InjuriesContinues to Drop
4.5
4.84.84.9
5.35.25.2
4.5
4.3 4.3
4.0 4.04.1
4.03.9
3.5
4.0
4.5
5.0
5.5
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06pSource: US Bureau of Labor Statistics ; Insurance Information Institute.
Fatality rates are down 26.4% since 1994.
Fatal Work Injuries per 100,000 Workers
Number of Fatal Work Injuries Continues to Fall
6,05
56,23
8
6,20
2
6,27
5
6,63
2
6,33
1
6,21
7
6,05
4
5,92
0
5,91
5
5,53
4
5,57
5 5,76
4
5,73
4
5,70
3
5,000
5,200
5,400
5,600
5,800
6,000
6,200
6,400
6,600
6,800
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06pSource: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.
The 14% decline in workplace fatalities since 1994 occurred despite the substantial growth in the size of
2006p: Preliminary based on data valued as of 12/31/20061991-2005: Based on data through 12/31/2005, developed to ultimateBased on the states where NCCI provides ratemaking services; Excludes the effects of deductible policies
Workers Comp Medical Claim Costs Continue to Climb
Cumulative Change = +200%(1993-2006p)
Med Costs Share of Total Costs is Increasing Steadily
Indemnity55%
Medical45%
Source: NCCI (based on states where NCCI provides ratemaking services).
Indemnity52%
Medical48%
Indemnity41%
Medical59%1986
1996
2006p
WC Med Cost Will Equal 70% of Total by 2016 if Trends Hold
Source: Insurance Information Institute.
Indemnity30%
Medical70%
2016 EstimateIf this happens,
•claims severity will accelerate relative to today
•claims management will become more difficult and complex but even more important
Source: NCCI 2005p: Preliminary based on data valued as of 12/31/20061991-2005: Based on data through 12/31/2005, developed to ultimate, from states where NCCI provides ratemaking services.Excludes the effects of deductible policies
Accident Year
Workers Comp Indemnity Claims Costs Have Accelerated, 1993-2006p
Change in CPS Wage Change in Indemnity Cost per Lost-Time Claim
WC Indemnity Severity vs. Wage Inflation
2.1
pts
2006p: Preliminary based on data valued as of 12/31/2006; 1991-2005: Based on data through 12/31/2005, developed to ultimate. Based on the states where NCCI provides ratemaking services. Excludes the effects of deductible policies. CPS = Current Population Survey. Source: NCCI
WC indemnity severity is once again outpacing
wage inflation
Mega-Trend #5:
The Aging Workforce
US Population:2007 vs. 2025 Projection*
14,269
10,721
8,440
7,361
5,523
5,334
21,128
19,647
16,041
12,268
7,557
8,011
0 4,000 8,000 12,000 16,000 20,000 24,000
60 to 64
65 to 69
70 to 74
75 to 79
80 to 84
85 and over
2007 2025
Source: National Projections Program, Population Division, U.S. Census Bureau
*Using the Census Bureau’s Middle (i.e., most probable) projections
Population in each age group (in thousands)
There will be nearly as many
85+ people in 2025 as there are 70-74
today
How accurate are these forecasts?
278.0
288.3
299.0
270
275
280
285
290
295
300
1996 Forecast
Mil
lio
ns
of
Peo
ple
In 1996 the Census Bureau Projected the 2006 U.S. Population
Source: U.S. Bureau of the Census, (NP-T3-C) Population Projections Program, Population Projections of the Total Resident Population by 5-year age groups, middle series, released January 13, 2000.
Low Projection
Middle Projection
High Projection
270
275
280
285
290
295
300
1996 Forecast 2000 Forecast
Mil
lio
ns
of
Peo
ple
In 2000 the Census Bureau Increased
Its Middle Projection for 2006
Source: U.S. Bureau of the Census, (NP-T3-C) Population Projections Program, Population Projections of the Total Resident Population by 5-year age groups, middle series, released January 13, 2000.
Instead of Low, Middle, and High forecasts, future Census
Bureau projections will be probabilistic distributions.
Middle projection was raised from 288 million to 290 million.
250
260
270
280
290
300
1996 Forecast 2000 Forecast Actual 2006
Mil
lio
ns
of
Peo
ple
The Actual 2006 Population Exceeded the “High” 1996 and the “Middle” 2000 Projections
Source: U.S. Bureau of the Census, (NP-T3-C) Population Projections Program, Population Projections of the Total Resident Population by 5-year age groups, middle series, released January 13, 2000.
The actual 2006 population was just under 300
million
How Does This Mega-Trend Apply to Workers Compensation?
Quarterly Labor Force Participation Rate, Ages 65-69, 1998-2007
25.2
%
25.2
%
26.3
%
26.5
%
26.2
%
27.9
%
27.2
%
27.4
% 27.9
%
27.3
%
27.8
%
27.6
%
26.8
% 27.6
%
29.3
%
29.5
%
27.9
% 28.5
%
28.7
%
30.8
%
29.3
% 30.1
%
29.1
%
27.0
%
22.9
%
23.0
%
22.8
%
23.0
%
22.3
%
22.5
%
22.1
%
23.5
% 24.4
%
24.4
%
24.3
% 24.9
%
24.4
%
24.4
%
24.8
%
20.0%
22.0%
24.0%
26.0%
28.0%
30.0%
32.0%
Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.
The labor force participation rate for workers 65-69 might grow even faster in the future as seniors find they
can’t fully retire on their meager retirement savings.
Labor Force participation rate
Quarterly Labor Force Participation Rate, Ages 70-74, 1998-2007
14.2
%
13.8
%
14.2
%
14.0
%
14.0
%
14.4
%
14.4
% 14.9
%
14.9
% 15.4
%
15.6
%
15.3
%
16.4
% 17.0
%
15.8
%
16.2
% 16.7
%
16.9
%
17.2
%
17.0
%
16.7
%
16.8
%
18.0
%
14.6
%
13.1
%13.6
%
12.4
%12.9
%
12.4
%
12.2
%
12.5
% 13.1
%
13.3
%
13.5
%
13.6
%
13.8
% 14.4
%
13.7
% 14.2
%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.
The labor force participation rate for workers 70-74 has grown by about 50% since 1998. It too might grow even faster in the future as seniors find they
can’t fully retire on their meager retirement savings.
Labor Force participation rate
Why Elderly Stop Working, byAge Group: 2002
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
55-59 60-64 65-69 70-74 75-79 80+
Poor Health More Time With Family
Wanted To Do Other Things Didn't Like Work
Source: Growing Older in America, US Department of Health and Human Services, p 47.
Percent whostop working
Age 80+ workers not retiring due to poor health!
Older Workers Have More Lost Time from Work Due to Injury or Illness
1211
10
8
6
44
0
2
4
6
8
10
12
14
16-19 20-24 25-34 35-44 45-54 55-64 65+
Source: US Bureau of Labor Statistics, US Department of Labor
There will be more lost time as the
workforce ages in the future.
Median Days Away From Work (2005)
Age 65+ workers median lost time is 50% greater than workers age 35-44
Distribution of Non-Fatal Work Injury Days AwayFrom Work, by Length of Period and Age group,
Ages 45 and over, 2005
38.8
%
11.6
%
20.5
%
30.2
%
32.5
%
15.3
%
17.7
%
34.5
%
28.4
%
19.1
%
12.3
%
40.3
%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1-5 days 6-10 days 11-30 days 31+ days
Ages 45-54Age 55-64Age 65 and over
Source: US Bureau of Labor Statistics, US Department of Labor, Table 8 from 2005 Survey of Nonfatal Occupational Injuries and Illnesses Requiring Days Away from Work, Revised data released 11-17-2006.
Percentage of cases
Workers 65+ more likely to be out a month or more
Workers 65+ more likely to
be out two weeks than one
Fatal Work Injury RatesClimb Sharply With Age
4.94.03.63.2
2.72.7
0.8
10.8
0
2
4
6
8
10
12
16-17 18-19 20-24 25-34 35-44 45-54 55-64 65+
Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.
The fatality rate for workers 65 and older is triple that of workers age 35-44. The workplace of the future will have to be completely redesigned to accommodate the
surge in older workers.
Fatal Work Injuries per 100,000 Workers (2006)
No Help from Medicare …
Medicare law has long specified that
• If Workers Compensation is available, Medicare will pay nothing,
• Medicare will pay if costs remain after all WC medical benefits are exhausted, and
• If Medicare does pay a bill, it has a right of recovery from the employer or WC insurer.
Workers Compensationand Medicare
Source: Title 42 Code of Federal Regulations, Section 411 et seq.
and Maybe a Fight from Medicare
Medicare is worried that, for workers who are covered by, or eligible for, Medicare, it will be stuck with costs shifted from those responsible for paying WC costs.
So, in those cases,
• It wants to review, and maybe disapprove, Workers Compensation settlements, if it believes there is insufficient WC money to pay for future medical costs,
• This may align Medicare with workers against employers and WC insurers
• This will increase WC administration costs
Workers Compensationand Medicare
Effect on WC Claims of Social Security Retirement Income
When a SS DI recipient reaches the “full benefit” retirement age, the DI benefit becomes a retirement benefit
• Social Security Retirement Income is not offset for WC indemnity paymentsSo disabled workers age 66 and over can collect both – moral
hazard?
Workers Compensation andSocial Security
Mega-Trend #6:
The Obesity Epidemic
Definitions:• Obesity
Having a very high amount of body fat in relation to lean body mass
Body Mass Index of 30 or higher
• Body Mass Index (BMI) A measure of an adult’s weight in relation to his or her
height,Specifically, the adult’s weight in kilograms divided by the
square of his or her height in meters
What Do We Mean by “Obesity”and How Do We Measure It?
Note: This slide and the next 23 slides are courtesy of the Centers for Disease Control and Prevention.
Obesity Trends* Among U.S. AdultsBRFSS, 1985
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14%
BRFSS is the CDC’s Behavioral Risk Factor Surveillance System. Each year, state health
departments use standard procedures to collect data through a series of monthly telephone interviews with U.S. adults.
Not a complete picture; many states didn’t provide data
then.
Obesity Trends* Among U.S. AdultsBRFSS, 1986
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14%
Obesity Trends* Among U.S. AdultsBRFSS, 1987
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14%
Obesity Trends* Among U.S. AdultsBRFSS, 1988
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14%
Obesity Trends* Among U.S. AdultsBRFSS, 1989
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14%
Obesity Trends* Among U.S. AdultsBRFSS, 1990
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14%
Obesity Trends* Among U.S. AdultsBRFSS, 1991
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19%
Obesity Trends* Among U.S. AdultsBRFSS, 1992
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19%
Obesity Trends* Among U.S. AdultsBRFSS, 1993
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19%
Obesity Trends* Among U.S. AdultsBRFSS, 1994
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19%
Obesity Trends* Among U.S. AdultsBRFSS, 1995
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19%
Obesity Trends* Among U.S. AdultsBRFSS, 1996
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19%
Obesity Trends* Among U.S. AdultsBRFSS, 1997
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% ≥20%
Obesity Trends* Among U.S. AdultsBRFSS, 1998
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% ≥20%
Obesity Trends* Among U.S. AdultsBRFSS, 1999
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% ≥20%
Obesity Trends* Among U.S. AdultsBRFSS, 2000
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% ≥20%
Obesity Trends* Among U.S. AdultsBRFSS, 2001
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% ≥25%
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 2002
No Data <10% 10%–14% 15%–19% 20%–24% ≥25%
Obesity Trends* Among U.S. AdultsBRFSS, 2003
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% ≥25%
Obesity Trends* Among U.S. AdultsBRFSS, 2004
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% ≥25%
Obesity Trends* Among U.S. AdultsBRFSS, 2005
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Obesity Trends* Among U.S. AdultsBRFSS, 2006
(*BMI ≥30, or ~ 30 lbs. overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
1998
Obesity Trends* Among U.S. AdultsBRFSS, 1990, 1998, 2006
(*BMI 30, or about 30 lbs. overweight for 5’4” person)
Class I BMI=30.0-34.9Class II BMI=35.0-39.9Class III BMI>40.0
For Analysis Purposes,We Create BMI Categories
The Most Obese Workers (BMI=40+)File Twice as Many WC Claims
as Healthy-Weight (BMI=18.5-25) Workers
40.9760.17
75.21
14.19
183.63
117.61
5.53 5.807.05
10.80
8.81
11.65
0
20
40
60
80
100
120
140
160
180
200
BMI <18.5(Underweight)
18.5-24.9(HealthyWeight)
25-29.9(Overweight)
30-34.9 (ObeseClass I)
35-39.9 (ObeseClass II)
40+ (ObeseClass III)
Los
t W
ork
day
s p
er 1
00 F
TE
s
0
2
4
6
8
10
12
14
Cla
ims
per
100
FT
Es
Lost Workdays Claims
Source: Ostbye, T., et al, “Obesity and Workers Compensation,” Archives of Internal Medicine, April 23, 2007.
The most obese have 13 times more lost workdays
than healthy weight workers!
WC Medical Claims Costs are 6.8x Higher for the Most Obese Workers
$7,1
09
$13,
338
$19,
661
$3,9
24
$5,3
96 $13,
569
$34,
293
$7,5
03
$51,
091
$23,
373
$23,
633
$59,
178
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
BMI <18.5(Underweight)
18.5-24.9(Healthy Weight)
25-29.9(Overweight)
30-34.9 (ObeseClass I)
35-39.9 (ObeseClass II)
40+ (ObeseClass II)
Medical Claims Costs Indemnity Claims Costs
Source: Ostbye, T., et al, “Obesity and Workers Compensation,” J. of the American Medical Association, April 23, 2007.
Indemnity costs are 11 times higher for the most obese workers than for healthy-
weight workers.
Not a Mega-Trend Yet, but …
Other things to keep aware of
Regulatory Concerns
• McCarran-Ferguson Narrowing could be harmful to WC rating bureaus and smaller
insurers who rely most heavily on advisory loss cost information
• Health Care Reform Déjà Vu—1992 Health Care reform will be a major theme in 2008 elections as in 1992 Back in 1992, it was proposed that workers comp would be rolled into
the general health care system This could happen again Insurers back then fretted about the “Medical Indemnity Disconnect”
The Terrorism Risk Insurance Program Reauthorization Act of 2007
• 7-Year Extension, expiring 12/31/14• Keeps Federal government’s cap at $100 billion• Keeps 20% Direct Earned Premium Deductible (about $35B)• Eliminates
distinction between foreign and domestic acts of terrorism requirement that terrorist act be on behalf of foreign person or foreign
interest Changes in definition of terrorist act require substantial rate and form
filings in states• Requires Comptroller General to issue report within 180 days on
obstacles in development of private sector market for terror insurance
• NBCR NBCR risks remain excluded Requires Comptroller General to issue report within 1 year on feasibility of
NBCR insurance market
Source: Insurance Information Institute
Insured Loss Estimates: Large NBCR Terrorist Attack ($ Bill)
Type of Coverage New York WashingtonSan
FranciscoDes
Moines
Group Life $82.0 $22.5 $21.5 $3.4
General Liability 14.4 2.9 3.2 0.4
Workers Comp 483.7 126.7 87.5 31.4
Residential Prop. 38.7 12.7 22.6 2.6
Commercial Prop. 158.3 31.5 35.5 4.1
Auto 1.0 0.6 0.8 0.4
TOTAL $778.1 $196.8 $171.2 $42.3
Source: American Academy of Actuaries, Response to President’s Working Group, Appendix II, April 26, 2006.
Summary
• Workers Compensation Has Benefited from Favorable Underlying Claims Trends, but this might not continue
• WC Premium Trends have followed the trend for Commercial Insurance generally
• Trends in Medical and Indemnity Cost are Worrisome
• The Aging of the Population and the Obesity Epidemic could cause WC claims to explode
• Q & A
Insurance Information Institute On-Line
If you would like a copy of this presentation, please give me your business card with e-mail address