Seminar: Workers’ Comp Costs are Major Concern to P&C Insurers

Washington – Workers’ compensation medical expense costs are growing at a rate far exceeding the increases in group health costs, and this will be a critical issue for property/casualty insurers and actuaries, attendees at the Casualty Loss Reserve Seminar were told.

Peter Rauner, FCAS and president, RMS Solutions Inc., gave an overview of the significance of the workers’ compensation insurance market, explaining that workers’ compensation is the largest commercial line and the largest source of industry loss reserves among property/casualty insurers. He framed the issue by describing how medical expenses are a large, growing portion of workers’ compensation benefits. According to NCCI data, in 1986, medical expenses accounted for 45% of the total claim costs, with indemnity accounting for 55%. In 2006, medical expenses had grown to 59% of the total workers compensation claim costs. In addition, workers’ compensation medical severities are growing at a rate well above the medical CPI growth rate.

“Over the last eight years, workers’ compensation medical costs have nearly doubled, from about $13.5 billion in 1999 to more than $25 billion in 2007—that’s staggering,” Rauner said.

Rauner outlined some of the factors driving medical costs on a macro level, such as inflation, economic growth, provider consolidation and lifestyle factors—increasing obesity and diabetes.

William Miller, FCAS, SVP and actuary, ACE USA, explained how workers’ compensation medical costs compared to group health costs. While they utilize essentially the same resources, there are major differences, which are driven by coverages and policy terms, political and regulatory pressures, and the duration of medical payout, he said.

“While group health includes disincentives for overutilization, workers compensation has no coinsurance payment by the injured worker,” explained Miller. “Utilization is one of the primary reasons that workers compensation costs are rising so dramatically.”

Miller used an NCCI study to drive home his point. The study looked directly at utilization for 12 injuries and compared services provided within three months of injury. It was found that workers’ compensation costs were 71% more than group health costs across the 12 injuries, driven primarily by increased office visits and physical therapy.

“Workers compensation injuries result in more intense and costly treatments earlier on than under group health,” said Miller.

Miller encouraged the actuaries in attendance to use their analytical skills to help design efficient workers’ compensation medical coverages. “Use predictive modeling to find which doctors are providing the best outcomes for getting workers back to work and staying at work,” urged Miller, as he outlined the keys to containing utilization.

Source: The Casualty Actuarial Society