Friday, August 9, 2013

Texas Pointing Way to Healthy Market

The health of the workers' compensation industry has direct ties to the health of the economy.

This makes absolute sense - an employer's premium is calculated in large part by the size of an employer's payroll, modified by the type of jobs that are being performed by the employees represented by that payroll.

Texas' had not been as hard hit by the recession as the other large states, and now it appears that the state is really taking off, economically, if the adage that workers' compensation reflects the economy is to be believed.

Here's the good stats:

Written premiums increased 13.1% from 2011 to 2012 according to the Independent Insurance Agents of Texas.

The state's dominant carrier, Texas Mutual, saw its share of the market increase by 3.3% over the same period, from 33.8% in 2011 to 37.1% in 2012.

The even better news for Texas is that, based on Texas Department of Insurance statistics, Texas Mutual wrote $244 million in premium during the fourth quarter of 2012, with the residual market accounting for only $1.4 million in premium. According to the same report, Texas Mutual's residual market premiums have stayed relatively stable since 2007, the first year in the report.

Texas is an optional state. I take this information two ways: either more employers are opting in and qualifying outside of the risky, residual market underwriting standards, or those with high risk and, ergo, high potential premium, are going bare and never entering the work comp market.

But the kicker is the growth in voluntary premium - which is directly correlated to growth in payroll, which is a direct descendant of employment.

Written premium is the highest in the state since 2008, when almost $2.6 billion in premium was written, compared to $2.4 billion in 2012.

Most of the growth is in commercial building, and the oil and gas industry.

Terry Frakes, senior vice president of public affairs for Texas Mutual, confirmed that economic growth – not the residual market – drove the insurer's market share.

"A large amount of our new submissions have been new business," he said to WorkCompCentral. "With the growth of the economy, we have seen a large increase in payroll."

He noted that the residual market accounts for less than 1% of Texas Mutual's overall written premium, with about $3.9 million in premium a year.

Not all states are experiencing this good news.

quarterly report by the National Council on Compensation Insurance released this week shows that none of the 21 states where NCCI manages the residual market had less than 100 policies.

Florida's residual market observed a 106% increase in premiums in 2012. The Florida Workers' Compensation Joint Underwriting Association, which is Florida's residual market carrier, saw its market share increase from 0.5% to 0.9%.

Representatives from Texas Mutual and IIAT told WorkCompCentral that, when comparing Texas to other states, it is important to remember that about 30% of the state's businesses are nonsubscribers, which means that Texas' workers' compensation statistics do not include a significant number of employers.

Texas Mutual also prides itself on its ability to improve the loss ratios of troubled employers and return them to the voluntary market, which suppresses the number of participants in the residual market.

And one thing that I believe that other big states can learn from Texas is its rate structure, which permits carriers to be much more flexible and thus much more competitive in pricing, which helps keep employers in the system.

"Part of that is because we have a lot more flexibility in the rating structure in Texas," Jim Gavin, the director of insurance information services for IIAT said. "I know that in Texas, most carriers are allowed to file credits or debits to the base rates themselves. So if they need more money, they can get more money basically. Or if they think that the rate is too high for a certain risk, then they can lower the rate for a certain risk."

This flexibility does not exist in California, Florida, New York, or Illinois - and I've said it before and I'll say it again: any attempt to reform the claim administration part of the work comp equation must also deal with the risk allocation part; Texas has done this.

Is Texas work comp perfect? Of course not. You hear the same complaints about the system as in other states: delays in medical, chintzy indemnity, and employers still complain about costs.

But this is all relative. Texas has remained one of the very few states where carriers actually make an underwriting profit. And Texas employers don't need to participate, so the fact that the vast majority of them do is testament to the state's system.

According to Gavin, first quarter 2013 is up again 12%. But he is not taking this as a trend without corroboration from subsequent quarters.

Still, the fact that it is up is an indication of optimism in the state's economy. Hopefully Texas is a leading indicator in the health of the overall market, and the overall economy.

No comments:

Post a Comment