While most insurance lines of business expect the worst from the economic and financial downturn, the workers compensation insurance market should expect a mixed impact.
Harry Shuford, chief economist, National Council on Compensation Insurance (NCCI) www.ncci.com, recently told attendees at the Casualty Actuarial Society www.casact.org Ratemaking and Product Management Seminar in Las Vegas, that recessions tend to place downward pressure on workers compensation exposure. However, one contradictory issue that underwriters and claims professionals often point out is that when a workers compensation client closes a plant, this leads to a surge in claims.
Shuford attributes the downward pressure to declines in employment and slower growth or declines in wage rates. During a recession, headcount is going down while the average weekly wage in all past recessions has continued to grow but at a much slower pace, he said.
The frequency of workers compensation claims has been falling steadily since the early 1990s, and will likely continue to decline for the foreseeable future, Shuford predicts. In the first two of the three most recent recessions, claims frequency dipped dramatically. In the most recent recession of 2001 the downturn was already underway, and there was an increase in the rate of decline.
Shuford went on to note that the growth in indemnity severity eases during recessions, driven by the slowing of growth in wage rates. The big impact on indemnity severity comes the year after the recession as the average weekly wage levels during the recession appear in the benefits structure.
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