The workers’ compensation insurance marketplace has been relatively tranquil over the last 5 to 10 years. During this period, legislative reforms in California and Florida precipitated rate decreases of up to 60 percent. Though not as dramatic, most other states have experienced decreased work comp costs along with an intensely competitive insurance marketplace. As we head into 2012, it appears the cycle is turning back toward increased costs and reduced capacity.

Insurance companies’ profits have eroded in the work comp arena for several years. Premiums are down due to the economic suppression and high unemployment rate, especially with their construction clients. Medical costs continue to explode as cost containment strategies are losing their punch. Adding to the mix of adverse conditions, investment income is down and multi-line insurance companies have been hammered by one of the worst years in decades for catastrophic property losses.

Insurance company sales representatives are out on the streets informing agents that the protracted period of matching their competitors’ pricing and taking on high loss ratio accounts is coming to a close. You will even see some insurance companies dump sizable chunks of their workers’ compensation business. We have seen this before, and this trend can accelerate rapidly—if not overnight.