While we are beginning to observe a firming of the market, there are some states experiencing both rate increases and decreases. For example, in California–where we do most of our business–the market remains generally stable and the insurance commissioner approved our additional average rate increase of 3 percent, which was effective on March 15.

However, this trend is tempered by steadily rising claims in California over the past 10 months, with a loss ratio at 30 percent. Another significant market for us is Florida, where rates are down 6.5 percent.

NU: How is your company adjusting to the shrinking of the exposure base in workers' comp, thanks to massive layoffs, businesses closing divisions or folding up altogether, and the slowdown in new business startups?

Mr. Dirks: Right now, the market is soft. And with falling payrolls we also see falling premiums. But we believe it is crucial to maintain our underwriting standards. Additionally, we will remain focused on the fallout and expense ratio.

NU: Do you expect any changes in loss frequency with all these layoffs? And how is your company remaining vigilant about any potential increase in fraud?

Mr. Dirks: We have seen no correlation in loss frequency and soaring layoffs in that sense. We know that older and more experienced employees are less likely to be injured on the job than younger, less experienced workers. However, even if frequencies decline, the severity of injuries may increase because older workers take longer to heal.

We continuously have an eye out for fraudulent claims and run special fraud identification programs. Our claims examiners are aware of key indicators of possible fraud–for instance, claims filed on Mondays or after holidays and vacations.

NU: With commercial insurance buyers cutting back in these tough times, how do workers' comp insurers keep clients focused on loss control, safety and back-to-work efforts? Isn't this especially challenging for smaller employers without full-time risk management departments?

Mr. Dirks: Certainly, it is especially important for businesses of all sizes to remain focused on risk management even during challenging economic cycles. We work with our small-business policyholders to help them identify their long-term business goals, which helps them maintain a strategic perspective even in a down economy.

We offer our policyholders an array of value-added risk management and loss control services that help them integrate common-sense measures into their daily operations to maximize workplace safety.

For example, we recently launched “Loss Control Connection,” which is our trademarked online risk management portal that simplifies the process of developing risk management programs that help reduce losses. We also offer a comprehensive return-to-work program, which aims to reduce lost time and increase productivity by getting injured workers back on the job as soon as possible.

NU: What is your company doing to put a lid on skyrocketing medical care costs in workers' comp, particularly when it comes to prescription drug coverage for pain?

Mr. Dirks: Prescription medication is one of the fastest rising costs, especially in states like Nevada and California. We have to adapt to this circumstance and take proactive measures to lower costs–for instance, by pre-authorizing expensive medication or treatments. We have also established a pharmacy benefit management program to actively manage this process and are rolling the program out to all of our markets across the country.

NU: What impact, if any, might comprehensive health insurance reform have on the workers' comp sector?

Mr. Dirks: As the health insurance reform law is implemented, the cost to treat the injured worker by the right specialists and to ensure prompt care could increase. Both of these aspects are crucial to providing workers the best care and returning them to work faster.

As an analogy, when a sports team's star athlete is injured, the team will do everything possible to provide the treatment and care necessary to prepare the athlete to get back on the field of play. We share the same philosophy in treating workers and getting them back on the job. However, the health insurance reform measures may actually cause delays in treatment.

NU: What expectations do you have for workers' comp over the next few years in terms of emerging trends and new exposures?

Mr. Dirks: There are some key trends we have identified and are closely monitoring.

First, the aging work force is definitely a trend to watch over the next several years. Older employees are injured less frequently, but the severity of their injuries is typically more significant and their healing times are longer. Therefore, although we anticipate the frequency in claims will go down, we expect the severity of claims will increase.

The second key trend we see linked to higher costs is obesity. Obese individuals have longer healing times, and in some cases certain procedures and treatments are not possible for these individuals due to their weight. Furthermore, obese individuals also have a higher incidence of diabetes, which also leads to further cost increases.

Pandemics will also become an issue in the future.

NU: What is the biggest news at your own company in the past year, and what might we expect from Employers over the next few years in terms of growth initiatives?

Mr. Dirks: The biggest news at Employers in the past year was our AmCOMP acquisition, which expanded our operations from 11 to 30 states and 17 branch offices. As a result, we now have a national footprint and are more diversified–which is a sound strategy, especially in the current economic cycle.

As the economy continues to recover, we want to grow market share in the states where we already do business. And because small businesses will lead the way out of the recession, we are well positioned for significant growth as the market turns.