FL Rate Filing Reflects Hard Economy

The National Council on Compensation Insurance (NCCI) latest Florida rate filing is consistent with a national trend precipitated by the recessionary economy and portends more difficult times to come for everyone in the workers' compensation industry.

While the Florida Workers' Advocates (FWA) challenge NCCI's conclusion that there has been a reversal in claims frequency, the data that was provided WorkCompCentral demonstrates the more serious issue - that there is basically no underwriting profit for carriers in the state which means that in these times of declining stock market returns and low bond yields carriers need some financial hat tricks to make a profit on this line.

NCCI reported that lost-time claims adjusted for wage growth dropped from 17.1 per million dollars of on-level premium in 2005 to slightly less than 15 claims per million of dollars of premium in 2008, but climbed back to 15.2 in 2009.

The key here is the measure against premium. There is significantly less premium coming in over this period of time.

NCCI reported that the total workers' compensation premium dropped by more than half during the past five years: $5.2 billion in 2005 compared to an estimated $2.3 billion last year.

Driving this 50% reduction in premium is lower employment, lower wages, and a competitive marketplace.

The Office of Judges of Workers' Compensation is also seeing a decline in claims filed by nearly a third over the same time frame: fewer people are at work to get hurt and those that do get hurt are feeling lucky they even have a job so they don't rock the boat with a litigated claim.

The stark reality of financial dysfunction in Florida's work comp market would not seem apparent to any observer at the state's big annual FWCI Conference, which I am attending in Orlando, FL. The turnout for the conference appears normal and there are well over 300 exhibitors in attendance as well. 

But that doesn't mean people aren't concerned. I asked several people yesterday how they felt things were going and I wasn't getting positive feedback.

Instead most that I talked to about the state of the industry were cautiously pessimistic, holding on to some hope that austerity management will get them through these tough times.

The question that was almost universal on everyone's mind that I talked to was, when is this bad economy going to end?

To that I could offer only my non-expert outlook, which is, not for a while.

This economy has quite a ways to go before we see it reverse course, the markets return to a growth pattern, consumers returning to confidence, businesses rehiring, buildings getting built, labor being employed.

Until that happens though belt tightening is the order of the day. The financial underpinnings of the work comp system depend on reasonably reliable returns on investments to generate the cash flow and capital returns necessary to meet long-tail obligations and provide a profit to investors.

Workers' compensation, when taken down to its basics, is a financial services industry. Its lifeblood is the economy and its ability to grow. When growth is stunted, or in our present situation, receding like my hairline, reverberations move through every sub-sector.

I don't recall much from my MBA education. But the one thing that stuck with me from my finance classes was the basic rule: Cash Is King. In these times there are no truer words. Hold on to it - cash is what pays the bills...