Agents must take lead as WC market hardens
The firming workers compensation insurance market is creating anxiety and, in some cases, panic for both insurance agents and employers. Rates are increasing, and capacity is shrinking for employers with adverse loss ratios and those working in high-hazard industries. It is easy and convenient to blame the traditional market cycle where insurance pricing goes up and down over time. However, agents and employers will miss a much bigger concern if they simply accept the current market conditions as an inevitable aspect of a business cycle.
The bigger concern is that leadership from insurance agents and other stakeholders has been lacking. For almost a decade, many agents and employers have focused primarily on chasing the lowest premium during a protracted soft pricing cycle. It has been a buyer's market. Regardless of the employer's loss experience, another insurance company was usually standing ready to step in and take on the risk, often at a lower price.
As a result, employers and agents took their eyes off the ball on prevention and effective management of injuries. It is not surprising that loss ratios have increased and insurance company profits have deteriorated. Begging and pleading with insurance companies to save a client from the residual market is not likely going to be an effective strategy for the foreseeable future. Insurance companies have taken losses in the workers compensation space for way too long, and they must stop the flow of red ink. It is long past time for agents to take on a greater leadership role with their clients and show them the path forward.
It is time to tell employers the hard truths, the first of which is that chasing the lowest premium in the marketplace as a primary means of managing long-term costs is a fool's errand. Agents are often too quick to follow and cater to an employer's demand to find the lowest price. It takes belief and gumption to lead employers through conversations that will help them understand the risks and threats of this flawed strategy.
It is common for agents to rationalize embarking on a perilous path of pursuing the lowest price. They will often tell themselves:
• "Well, that's what the employer wants, so it's my job to do it."
• "I will hunt for a low price market, but I will try to impress them during my presentation and perhaps I can still win the account."
• "Times are tough right now, so getting the lowest premium is probably what they really need."
Agents need to believe that even though employers may say all they want is the lowest price, they really want much more. They want to:
• Have employees go home in the same condition they arrived at work.
• Make sure injured employees receive the best and most appropriate medical treatment so that they recover as soon as possible.
• Reduce the duration and the cost of injuries.
• Efficiently finance the cost of injuries with the best-suited rating plan or program.
• Stay in compliance with federal and state acts.
• Steer clear of inadvertently exposing themselves to denials of payment by the insurance company.
• Avoid overcharges due to errors on their premium audits and experience modification factors.
• Create and maintain a positive corporate culture.
• Increase productivity, profitability and business opportunities.
There is a huge opportunity for agents to step in and lead. Employers have latent needs and desires, which they are either unable to recognize or to articulate. With capabilities and effort, agents can transform their latent needs into explicit needs and wants.
The best defense against significant insurance market swings for all stakeholders is for agents to take the lead and collaborate with employers to help them get what they really want and not just follow their knee-jerk responses. Going into a tough market with an employer that has implemented business practices that reduced the number, cost and duration of employee injuries is much less stressful and costly for both the agent and the employer.
It is too late for some employers. Their risk profiles arising from the past several years of inattention to what really matters are so poor that they are just going to have to pay the piper. However, it may not be too late for those employers on the border between a voluntary market renewal and the residual market. If agents can jump in, tell the hard truths and lead, then the employer they save may be their own.
NCCI's split point a moving target
I want to provide a brief observation on the comments by Todd Kurz of MidAtlantic Insurance Services regarding the NCCI increase in the split point. (March issue, page 14). He states that the split point will increase to $15,000 in 2015. This is not precisely accurate although it is a misperception I see repeated frequently in various formats. The original NCCI filing calls for an "inflation adjusted $15,000" split point in 2015. In reality, this means the split point likely will be $17,000, and perhaps $17,500, based on the current claims inflation factor. Even more startling is the inflation-adjusted impact in 2020, when the split point could reach $22,000. (Without going into too much detail, you can find the claims inflation factors in the NCCI retro filings if you know where to look.)
I've always felt it was rather disingenuous of NCCI to promote the 2015 split point as $15,000 when they knew from the start that it likely would be $17,000 in 2015. While I don't have an issue with increasing the split point, I have a lot of heartburn with an inflation adjusted split point that will always be higher (typically by at least 33%) than the average claim value (the G # noted in the rate filings). Helping clients manage their WC costs is significantly more difficult with an ever changing split point.
Risks with debit mods at approximately 1.10 and above will see significant premium increases because of the split point change. Just through the first quarter of this year, I have seen a number of experience mod increases of 30 to 60 points for some clients and from other accounts agents have sent me for review. Premium increases for a few risks have been significant enough to cause them to question continuing operations.
My personal opinion is the split point should be frozen at $10,000 through at least 2015, then re-evaluated for its effectiveness at that time.
—Dean Brooks, CPCU, CLU
Miller, Fidler & Hinke