Workers' comp trends to watch in 2021
Declines in new business and potential adjustments in payroll during audits are just a few of the pressing workers’ comp issues to monitor.
Pre-pandemic workers’ compensation trends of declining loss costs and expense ratio gains were exacerbated by COVID, making the need for better underwriting and portfolio management practices even more pressing as we move into the “next normal,” according to Insurity LLC.
Investment yields are at an all-time low, which is compounding troubling trends as it becomes more difficult to make up losses with investment income, the InsurTech reported.
“It’s clear from our analysis that new business is becoming harder to find while insurers may also be on the hook to return a significant amount of premium upon retrospective audits,” Kirstin Marr, head of data solutions at Insurity, said in a release. “Compounding this, investment yields are at all-time lows. This puts adequacy of premium at risk and creates urgency around enhanced risk selection, pricing, and portfolio management practices — not only to safeguard loss ratios but also to establish competitive differentiation.”
Helping the insurance industry navigate through uncertain times, the InsurTech has identified the following four trends impacting the workers’ compensation sector:
1. New business quotes down
New business submissions from across industries were down 10% year-on-year during the second and third quarters of 2020, with some industries such as arts, entertainment and accommodations seeing declines above 20%, according to Insurity.
As new business becomes harder to find, pricing and risk selection excellence become even more critical. Insurers should also look to new ventures or market segments to support new business, which typically accounts for 20-30% of an insurer’s book of business, the InsurTech reported.
“With new business quotes down as much as 23% in some industries — underwriting profitability becomes incredibly important to achieve because insurers simply can’t afford to miss on the scarce new business opportunities available,” said JJ Ihrke, head of analytics and chief scoring officer at Insurity.
2. Renewals remain stable
September 2020 saw renewal rates were 97% of what they were compared to the same period 2019, indicating shopping for insurance was not top of mind for many insureds. This is likely because other matters, such as staying in business and keeping employees safe, took precedence over finding lower rates.
Although high renewal rates are a good sign, Insurity explained that it shouldn’t be construed as a pattern of future actions. As attracting new business remains a challenge, working to maintain high-retention rates will be vital.
3. Payroll averages flat
Average policy payrolls through Q3 2020 were flat compared with pre-pandemic levels, which could turn out to be misleading, Insurity reported. As the economic fallout from COVID is still being determined, significant decreases in payrolls could be reported with retrospective premium audits. This would result in large amounts of premium being returned. Backing this up, S&P Global Ratings found U.S. workers’ compensation premiums fell 8% year-on-year during the first half of 2020.
4. Premiums continue decline
Despite payroll and exposure not changing much, premiums continue to drop. This confirms that loss costs are continuing to see a steady decline.
The impact from the pandemic will be felt into the new year, and combined with falling loss costs, the industry should expect to see a lack of premium adequacy funding for the foreseeable future, Insurity reported.
Related: