AFTER enduring several consecutive years of deteriorating results, the workers compensation insurance system is showing signs that it may be on the mend. The industry's calendar-year combined ratio, after rising for five straight years to 122 in 2001, dropped to 111 in 2002, according to figures released last year by the National Council on Compensation Insurance. Estimates of reserve inadequacy also took a turn for the better, dropping to an estimated $18 billion in 2002 following a seven-year climb that peaked at $21 billion in 2001. In light of rate hikes that were approved last year in many jurisdictions, there is reason to hope that this spring, when NCCI releases its 2003 estimated results, they will show continued improvement.

Not that all is well with workers compensation insurance. NCCI reported that in 2002 the line suffered a 0.1% pre-tax operating loss (following a horrendous 7.7% loss in 2001). And given the weak investment climate, an NCCI report last year stated that “many carriers may need a combined ratio of less than 100% to return their cost of capital.” Uncertainties also abound, ranging from the effects of OxyContin on the workers comp system to whether the Terrorism Risk Insurance Act will be renewed in 2005.

To get an idea of what may lie ahead for workers compensation, we recently contacted the NCCI, as well as two prominent workers comp insurers and two intermediaries. Following are their comments.