Cloudy with a Chance of Sun: Staffing Workers’ Compensation Market Update
It was predicted that 2014 would be another challenging year for the staffing workers’ compensation marketplace and that certainly appears to be the case. Some of the challenges facing the industry are decreased capacity, NCCI’s changes to its experience rating plan and potential expiration of the Terrorism Risk Insurance Program Reauthorization Act.
As announced in late 2013, Liberty Mutual began non-renewing its staffing book of business early 2014. That process will continue throughout 2014 and into early 2015 until Liberty Mutual is fully out of the staffing industry. Additionally, Freestone Insurance (f/n/a Dallas National) has been placed into liquidation effective August 15, 2014. Freestone Insurance, which underwrote many staffing and PEO entities, will no longer be a viable workers’ compensation market. Moreover, Tower Group has been downgraded by A.M. Best to the point at which it has now been sold to AmTrust. Unfortunately, Tower’s staffing book of business was not part of that transaction. These market changes have resulted in decreased market capacity of carriers willing to underwriter the staffing industry.
Winds from the NCCI Split Point
Effective 2013, NCCI (and its participating 38 states) all approved a revised rating plan to increase the split point – the dollar threshold used by NCCI to divide individual losses into primary or “frequency”, and excess, or “severity” layers. The pre-2013 split point level was $5,000 with increases phased in over the next three years as follows:
- $10,000 in 2013
- $13,500 in 2014
- $15,000 plus two years of inflation adjustment in 2015
Depending on how each staffing company’s actual loss history affects the calculation’s outcome, they will view the experience modification changes either positively or negatively. It’s estimated that 25% of staffing organizations will incur an increased experience modification factor in 2014 as a direct result of the revised split rating methodology.
Potential Rain from the Terrorism Risk Insurance Program Reauthorization Act
The Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) is set to expire December 31, 2014. Several House Bills have been introduced to extend TRIPRA – each with some level of bipartisan support. The intent of TRIPRA is to provide stability for a viable insurance market – especially in higher risk areas. With this pending uncertainty, some carriers are reducing their exposure to a potential terrorist event while others may roll out mid-term premium increases if TRIPRA expires. Because insurers are not allowed to exclude terrorism-related losses and employers are required to buy it, the terrorism coverage options may be reduced and rate increases are likely.
Sun is Trying to Peak Through
Aside from the challenges referenced, the workers’ compensation market is broadly showing signs of improvement. The fact that the workers’ compensation combined ratio was 101 in 2013, a seven-point decrease from 2012 and a 14-point decline since 2011, shows the workers’ compensation market is returning to a state of “balance”, according to NCCI.
“Today, industry costs are largely contained, claims frequency continues to decline, and the system in most states is operating efficiently. In short, the market is operating as it should on behalf of most stakeholders,” reports NCCI President and CEO Steve Klinger. Continued risk management vigilance will help overcome some of the 2014 market forces challenging the recent positive industry trends.
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