Workers’ Compensation Market Trends: Q4 2013

Workers Comp: Q4 2013

Reported rate increases for Workers’ Comp are averaging approximately +5.2% on a countrywide basis, which is down about 2.1% compared with the average rate increase of 7.3% from our December 2012 report. December’s average rate increases were down about 1% from the September 2013 report.

Workers’ Compensation Survey Rate Change Distribution

Middle Market Accounts National Accounts Global Accounts
20% or more rate increase 1.1% 0.0% 0.0%
15% to 19.9% rate increase 5.5% 2.0% 4.5%
12.5% to 14.9% rate increase 1.1% 0.0% 0.0%
10% to 12.4% rate increase 5.5% 5.9% 0.0%
7.5% to 9.9% rate increase 11.0% 17.6% 9.1%
5% to 7.4% rate increase 26.4% 23.5% 22.7%
2.5% to 4.9% rate increase 24.2% 29.4% 31.8%
.01% to 2.4% rate increase 8.8% 5.9% 4.5%
Flat 11.0% 9.8% 18.2%
Down -.01% to -4.9% 4.4% 3.9% 4.5%
Down -5% to -9.9% 0.0% 0.0% 4.5%
Down more than -10% 1.1% 2.0% 0.0%
Average Rate Change Dec 2013 5.5% 5.1% 4.0%
Median Rate Change Dec 2013 5.1% 4.9% 4.1%
Average Rate Change Dec 2012 8.0% 5.9% 5.9%
Median Rate Change Dec 2012 7.2% 5.9% 6.0%
Note: Average Rate Change is calculated by the sum of the mid-point of each rate band above divided by the total number of survey respondent. The Median Rate Change is the mid-point of the most commonly selected rate band in the survey.

Workers Comp: Q4 1023Rate changes for WC have decreased on average for all market segments since September 2013, with global accounts showing a greater average decrease, from +6.4% to +4.0%, since then. Median  rate changes for middle market and global accounts also dropped by about 2.5% with national accounts median rate changes dropping by only about 1.1% since September, which appears due to more consolidation of both lower and upper tails of the national account rate change distribution towards the center.  About 5-10% of respondents reported rate decreases and the percentage of respondents who reported flat renewals increased slightly for middle market and global accounts but more significantly for national accounts, jumping from about 2% to about 10%.

Year over year, the average rate changes for the middle market are running almost 2 to 2.5 percentage points below December 2012 and national account average rate changes have dropped by about 1 percentage point since December 2012.  Global account rate increases are also down about 2 percentage points from last December.

Both the middle market and WRS graphs indicate that average rate change distribution is shifting to the left which means that rates changes  are moderating. Middle market and WRS are showing similar distributions, with WRS showing a slightly lower concentration of rate changes in the upper tail. The mode is still at +5% but there is a shift, with higher concentration at +2.5% than we previously saw.

Construction and real estate rate increases are hovering around +4%, a decrease from last quarter’s survey. Average rate increases for construction dropped by about 1.6 percentage points and for real estate by about 2 percentage points.  The average rate changes for other industries also dropped by a smaller amount, with a reduction somewhere between .5 and 1 percentage point from last quarter. They are still running higher than the average rate changes for construction and real estate by about 1.5 percentage points.

WC Average Market Survey Rates

Industry Construction Real Estate Other
Mean 4.0% 4.2% 5.7%
Median 3.8% 4.3% 5.4%

Average rate changes by region are running in a pretty tight band this quarter. CA has dropped significantly and is on average about 4.4 percentage points lower that last quarter. The improvement in the Southwest is of similar magnitude and average reported rate changes are almost flat. However, both CA and the SW are based on a fairly small sample sizes so it will be interesting to see if this trend will continue or if it is only an aberration. The SW rate change pulled down the average for the combined South region to the lowest among our regions but the SE was similar to the rest of the country.  The Atlantic North reported the highest rate changes on a regional basis but was still below CA and only deteriorated by .4 percentage points from last quarter – so this could be statistical noise.  The average rate change for the Midwest region is almost double what was reported last quarter when it had the lowest reported regional average rate change.

WC Market Survey Rate Changes by Region

Workers Comp: Atlantic North Q4 2013Atlantic North: 6.7%

The rate change distribution appears to be returning to where it was about two years ago, with minor variations, and there is more dispersion than there has been in recent quarters. The most frequently reported rate change (modal rate change) is still around +10% but there are almost as many respondents reporting flat renewals in the region. The tail at +15% has actually gotten a little fatter when compared with June 2013 but is a little thinner compared with September 2013 and vice versa for rate increases greater than +15%.

wc-atl-south_2013q4Atlantic South: 5.2%

Atlantic South is again relatively unchanged, with a bit more concentration at +10% but probably not a significant change and a bit less concentration at 15% and greater.  The Atlantic South appears to have a much more consistent rate change distribution since September 2012.

wc-ny_2013q4NY Metro: 5.9%

NY Metro seems to be showing some seasonality around December. At +5% and above, the distributions for each December valuation are very similar. June and September 2013 bounce around the December 2013 valuation in terms of the modal rate change moving from  about +5% in June, to about +15% in September, and then dropping back to +10% in December.  Keep in mind that rate changes in the classes are running between the class below and the number indicated for the class on the chart.

wc-south_2013q4South: 3.9%

There seems to be a shift from the upper tail to the lower tail but the central part of the rate change distribution is fairly stable. Much of the change is probably the result of the improvement reported in the Southwest.

  • Southeast:5.3%
  • Southwest: 0.6%

wc-midwest_2013q4Midwest: 5.1%

There appears to be a shift in placements from the lower tail of the rate change distribution toward the center of the distribution into the +2.5% to +10% range.  Again, the average rate change for this region increased from the last quarter but the distribution appears to be concentrated in the +5% to +10% range.

wc-west_2013q4West: 4.8%

The distribution of rate change appears to have made a move toward the lower tail, which probably reflects the improvement reported for CA. The modal rate change for this region is at the lowest level, +5%, that we have seen since December 2011.

  • California: 7.7%
  • Non-California West: 3.0%

Excess Workers’ Compensation Market Trends

Average reported XS WC rate changes have dropped back to +5.4% from  +7.0% last quarter and closer to the  +5.6% where they  were as of June 2013. The rates are also down from +7.0% where they were a year ago.

Excess Workers’ Compensation

Middle Market Accounts National Accounts Global Accounts
20% or more rate increase 2.0% 0.0% 0.0%
15% to 19.9% rate increase 2.0% 2.6% 5.9%
12.5% to 14.9% rate increase 3.9% 2.6% 0.0%
10% to 12.4% rate increase 13.7% 7.9% 11.8%
7.5% to 9.9% rate increase 13.7% 15.8% 11.8%
5% to 7.4% rate increase 21.6% 21.1% 11.8%
2.5% to 4.9% rate increase 17.6% 21.1% 17.6%
.01% to 2.4% rate increase 3.9% 5.3% 17.6%
Flat 15.7% 13.2% 17.6%
Down -.01% to -4.9% 2.0% 2.6% 0.0%
Down -5% to -9.9% 2.0% 2.6% 5.9%
Down more than -10% 2.0% 5.3% 0.0%
Average Rate Change Dec 2013 5.8% 4.6% 4.6%
Median Rate Change Dec 2013 5.9% 5.2% 4.2%
Average Rate Change Dec 2012 7.1% 6.9% 8.7%
Median Rate Change Dec 2012 6.6% 6.0% 6.3%

Global accounts are showing the greatest improvement in rates compared with a year ago, with over a 2 percentage point drop in the median rate change and more than a 4 percentage point drop in the average rate change.

National account average rate changes for XS WC also improved, showing a .8 percentage point drop in the median and a 2.3 percentage point drop in the average rate increase as compared with December 2012.

Middle market rate changes are down about .7 percentage points at the median and 1.3 percentage points on average from a  year ago.

XS WC Market Survey Rate Changes by Region

Regional Excess WC average rate trends varied from +2.4% in the NY Metro Region to +7.4% in the Atlantic South Region. The West and the Atlantic South improved from last quarter. The other regions all showed deterioration from last quarter. CA and the SW show average rate decreases but these numbers are based on very small samples that have little credibility. It is more reasonable to consider the results of the region in which they are contained as representative.

West: 2.4%

  • California: -2.9%
  • Non-California West: 4.3%

Midwest: 6.5%

South: 6.2%

  • Southeast: 8.0%
  • Southwest: -10%

New York Metro: 3.6%

Atlantic

  • Atlantic South: 7.4%
  • Atlantic North: 6.7%

Exposure Trends and Other Items

Reported payrolls haven’t changed significantly from last quarter, with about 79% of respondents indicating that payrolls were moderately increasing and about 18% indicating payrolls were flat.  About  68% (a bit higher than last quarter) indicated employee counts were increasing moderately or more about 28% (a bit lower than last quarter)  indicated they were flat. Generally, we are seeing payrolls increase at a faster rate than employee head counts.

About half of the respondents indicated that experience mods were moderately or rapidly increasing, with about 32% (slightly lower than last quarter) indicating mods were flat. About 18%, a slight increase over last quarter, 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.

CA (60.2%), NY (42.6%) and FL (32.8%) were most frequently cited as challenging Workers’ Comp states. Monoline WC, guaranteed cost WC, and XS WC continue to be the problematic placement in many regions. Underwriters (AIG and CNA were sited specifically) are non-renewing insureds that experienced a severe loss during the prior policy period. It will be interesting how insureds are impacted by the treatment of the terrorism exposure as we get closer to the expiration of TRIPRA. We expect this to become a bigger issue approaching the April 1 renewals.

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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