Mixed News Shows Service is Critical

We reported several seemingly unrelated stories this morning in the WorkCompCentral news which, upon closer inspection, are all related.

In New York an appellate court upheld the constitutionality of the State Workers' Compensation Board (SWCB) to make assessments against the remaining self-insured employer members of the failed CRM Holdings, which was shut down by NY officials in 2006 due to underfunded reserves.

CRM is Majestic Capital, a Bermuda based insurance holding company and parent company of Majestic Insurance.

Yesterday the San Francisco Superior Court granted the California Department of Insurance an order placing Majestic Insurance Company into conservatorship.

In the meantime the California Workers' Compensation Insurance Rating Bureau (WCIRB - an advisory group that makes statistical analysis and assists carriers set rates) announced that carriers in that state saw a slight decline in claim costs from 2009 to 2010, that the combined ratio also declined, and that premium volume increased - all good news.

Written premium increased slightly as well to about $9.8 billion, which is still far below the "crisis" year of 2004 when skyrocketing premiums peaked at $23.5 billion, leading to a recall of Governor Gray Davis, the popular vote to office of Arnold Schwarzenegger, and the emergency "reform" of the California work comp system.

But the WCIRB's good news was tempered by the announcement that claim frequency increased by 4.5%.

Work comp is a brutal line in terms of profitability for carriers - actuarial excellence is a must, and pricing discipline defines the future financial viability of the system from the top down.

But the one element that ties this news altogether is that SERVICE to the employer remains the single most important aspect to a) ensuring reasonable rates, b) retaining business, c) and controlling costs.

Prior to "open rating" in California (which began in 1997) carriers competed almost exclusively on service, because they could not charge less than what the Department of Insurance allowed. Now we are seeing that even with "open rating" service is still the key marketing element of carriers who wish to stay in business.

Certain companies who have been through the cycles understand this. Others, such as Majestic, leave their road kill carcases on the open highway of the work comp insurance line. In this business you can't compete on pricing and remain viable. Service costs more up front, but keeps costs lower over time, and is the key to marketing the work comp line.