Workers’ Compensation Market Trends: Q3 2013

Workers Compensation Market Trends: Q3 2013

For several years I’ve been polling Willis North America casualty brokers quarterly about activity they’re seeing. This rich data now this gives us great perspective not just on where the market was but rather where it is going, as we can see the regional micro trends and the industry differences. So I thought I’d start sharing that with our WillisWire readers—starting with the trends we saw in Q3.

Casualty market rate trends remain mixed. Carriers are continuing to seek workers comp rare increases around the country; whether they are getting those rate increases is a different story. Auto liability has settled down a little more than this time last year. Rate increases on umbrella and excess liability are modest to flat. Regionally trends vary: Midwest is seeing the smallest rate increases and NY Labor Law issues are still creating market challenges. Let’s dive into the details.

Reported rate increases for workers comp are averaging approximately +6.2% on a countrywide basis, which is essentially the same as the average rate increase of 6.1% from our September 2012 report, with many renewals continuing to experience rate-on-rate increase.  However, September’s average rate increases were down slightly (less than 1%) from the June 2013 report, and we anticipate a similar trend to continue through year end 2013.

Workers Compensation Survey Rate Change Distribution

Middle Market Accounts* National Accounts* Global Accounts*
20% or More 3.6% 1.9% 0.0%
15% to 19.9% rate increase 2.4% 0.0% 0.0%
12.5% to 14.9% rate increase 3.6% 3.8% 0.0%
10% to 12.4% rate increase 18.1% 9.4% 33.3%
7.5% to 9.9% rate increase 10.8% 9.4% 0.0%
5% to 7.4% rate increase 22.9% 39.6% 33.3%
2.5% to 4.9% rate increase 14.5% 24.5% 8.3%
.01% to 2.4% rate increase 8.4% 3.8% 8.3%
Flat 9.6% 1.9% 16.7%
Down -.01% to -4.9% 3.6% 3.8% 0.0%
Down -5% to -9.9% 0.0% 0.0% 0.0%
Down more than -10% 2.4% 1.9% 0.0%
Average Rate Change Sep 2013** 6.5% 6.2% 6.4%
Median Rate Change Sep 2013*** 7.6% 6.0% 6.6%
Average Rate Change Sep 2012 7.4% 7.9% 6.1%
Median Rate Change Sep 2012 6.6% 7.5% 6.7%
*Percentage of brokers who reported each rate change.

**Average Rate Change is calculated by the sum of the mid-point of each rate band above divided by the total number of survey respondents.

***The Median Rate Change is the mid-point of the most commonly selected rate band in the survey.

With regard to specific markets, national accounts and middle market rate changes for workers comp have decreased, with middle market showing a greater average decrease—from +8.0% to +6.5%—since our June survey. However, the reported median rate change for middle market is actually up from +6.9% in June to +7.6% in September.

The average rate change was pulled down, as more than 5% of the respondents reported rate reductions. This was the first emergence of rate decreases since 2012.

Reported rate changes for global accounts actually increased from approximately +5.9% during the second quarter to between +6.4% (mean) and +6.6% (median).

The Middle Market

2013 Q3 Workers Compensation Trends: Middle MarketYear over year, the average rate changes for the middle market are running almost 1% below September 2012, and national account average rate changes have dropped by 1.5% or more since September 2012.  Global account rate changes are up slightly on average, but the median for this group is down slightly.

The middle market graphs indicate that reported average rate increases for this market  have declined since June 2013 and year over year but median rate change is higher in September 2013 than prior years.  On average these accounts are seeing a 6.5% rate increase again this year.  It is worth noting that more than 10% of respondents had either flat renewals or rate reductions, which we were not reported in the September 2012 rate survey.

Construction and Real Estate

Once again, reported average and median rate increases for construction and real estate industries do not seem to be significantly different from other industries, running generally in the +5.4% to +6.7%  range—a decrease from the June 2013 results when they ranged from +6.5% to +7.5%.  Construction is actually reported to be running a bit below real estate and other industries.  However, this may be affected by regional trends.

WC Average Market Survey Rates

Industry Construction Real Estate Other
Mean 5.6% 6.7% 6.1%
Median 5.4% 5.9% 6.4%

All regions reported the highest concentration of rate changes in the +5 to +10% range except the West  and NY Metro where the highest concentration was in the +10% to +15% range. In the West this is to be expected given the nature of the CA WC market. The distribution of responses in the West region showed more spread with only about 30% of respondents in the modal category compared with over 50% of responses in the highest concentration rate category for the other region. This reflects how different the California workers comp market is from the workers comp market in the other states in the West region.

Regional Analysis

Atlantic North: 6.3%

2013 Q3 Workers Comp Rate Increases: Atlantic NorthRate increases for the Atlantic North region was down to +6.3% from +7.8% in June 2013.  There has been a shift in the most frequently reported rated change (Median Rate Change) from the +2.5% to +5% range to the +5% to +10% range.

We observed rate increases in the New England states (MA, CT, RI, NH, VT) as early as December 2011, with the concentration of placements receiving +5 to +10% rate  increases. The September 2013 rate trends mirrored both December 2011 and December 2012 rate trends.  In September 2013, there were fewer responses indicating rate changes greater than 15%, but the responses appear to have shifted to the +10% to +15% class since June 2013. The number of respondents reporting rate changes below +2.5% remains unchanged same since June 2013.

2013 Q3 Workers Comp Rate Increases: Atlantic SouthAtlantic South: 6.8%

Atlantic South is relatively unchanged, with the average rage change at +6.8% vs.  +6.9% last quarter. The median rate change for this region has been +5% to +10% for more than 6 quarters.  However, the rate change distribution appears to have been slightly less concentrated in March 2013 vs. other quarters beginning in September 2012.

NY Metro: 6.8%

2013 Q3 Workers Comp Rate Increases: New York MetroNew York Metro average rate increase is up slightly at +6.8% from +6.6% last quarter, but the rate distribution for New York Metro, like the West, has shifted, with more renewals receiving double-digit rate increases than prior surveys.

While the June 2013 results appeared to shift slightly left (softer) the September rate results appear to have  shifted right (firming), counteracting any softening observed last quarter.  These were the first observable changes in the trends since September 2012.

New York construction and labor law risks appear to be driving the rate trends; but loss-sensitive accounts are seeing rate increases of 2.5% to 5.0% on average.

South: 6.6%

2013 Q3 Workers Comp Rate Increases: SouthOverall the South averaged 6.6%, similar to what NY Metro and the Atlantic regions are experiencing, but the Southeast and Southwest looked very different:

  •  The Southwest reported relatively low average rate increases at +4.7%
  • The Southeast reported higher rate trends of 7.2%—presumably driven by Florida rates trends

As with some other regions, the rate change distribution was fairly dispersed in December 2011.  However, since September 2012 it has become more concentrated and similar to the rate trend distributions that we have observed in other regions with the exception of the West and NY Metro.

Midwest: 2.5%

2013 Q3 Workers Comp Rate Increases: MidwestThe Midwest is once again reporting the lowest average regional workers comp rate changes at +2.5% in September 2013, compared to +6.1%, which was also the lowest last quarter (June 2013).  The rate change distribution concentration seems to have peaked for this region around a year ago. The response concentration in the modal class, +5% to +10%, is about 38% vs. a high of about 54%.

West: 8.6%

2013 Q3 Workers Comp Rate Increases: WestLike the South, the West is a tale of two sub-regions:

  • California’s average rate increase increased this quarter from +10.1% in June 2013 to +12.1%.
  • The rest of the West region is running at only +4.0%.

California Workers Comp reform appears to have had little effect on the rate so far, and the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) has actually reported a surprising 6% increase in claim frequency through the first six months of 2013.

Excess Workers’ Compensation Market Trends

Average reported excess workers comp rate changes continue a downward move at +5.6%, down from +6.2% last quarter. This is running about .6% below reported average insured workers comp rate increases.

Last month there was a roughly 1% spread between average excess workers comp vs. insured workers comp rates so the gap in average reported rate increases appears to have narrowed.  This is first time since early 2012 that we have observed any reduction in rate increases or softening since early 2012.

Excess Workers Compensation

Middle Market Accounts* National Accounts* Global Accounts*
20% or More 4.8% 0.0% 0.0%
15% to 19.9% rate increase 2.4% 2.7% 0.0%
12.5% to 14.9% rate increase 7.1% 2.7% 0.0%
10% to 12.4% rate increase 7.1% 0.0% 0.0%
7.5% to 9.9% rate increase 2.4% 10.8% 22.2%
5% to 7.4% rate increase 26.2% 35.1% 22.2%
2.5% to 4.9% rate increase 19.0% 35.1% 11.1%
.01% to 2.4% rate increase 2.4% 2.7% 0.0%
Flat 28.6% 8.1% 44.4%
Down -.01% to -4.9% 0.0% 2.7% 0.0%
Down -5% to -9.9% 0.0% 0.0% 0.0%
Down more than -10% 0.0% 0.0% 0.0%
Average Rate Change Sep 2013** 5.9% 5.5% 3.9%
Median Rate Change Sep 2013*** 7.2% 5.2% 3.8%
*Percentage of brokers who reported each rate change.

**Average Rate Change is calculated by the sum of the mid-point of each rate band above divided by the total number of survey respondents.

***The Median Rate Change is the mid-point of the most commonly selected rate band in the survey.

Exposure Trends and Other Items

Reported payrolls haven’t changed significantly from last quarter, with about 77% of respondents indicating that payrolls were moderately increasing, and about 14% indicating payrolls were flat.  About 60% indicated employee counts were moderately increasing and more about 35% indicated they were flat.  Generally we are seeing payrolls increase at a faster rate than employee head counts.

Just over half of the respondents indicated that experience mods were moderately or rapidly increasing, with about 35% indicating mods were flat. Only about 15% indicated mods were decreasing.

As mentioned last quarter, some middle-market clients currently on guaranteed cost programs may want to consider loss sensitive programs with modest retentions and aggregate stop loss or maximum premiums built in to protect the upside. This may help offset large premium increases due to exposure and rate changes provided loss experience is favorable.

California, New York, Florida, and Massachusetts were most frequently cited as more challenging workers comp states.  Monoline workers comp, guaranteed cost workers comp, and excess workers comp, continue to be the problematic placement in many regions.

About Pamela Ferrandino

Pam has been with Willis since 2004 and is Executive Vice President, National Practice Leader for Casualty, Placeme…
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