Thriving in a Changing Comp Marketplace

Competition in the workers’ comp marketplace has continued to be strong during the past year, but pricing has begun to firm and more rate increases may be on the way. “Overall, 2013 was a good year for the commercial property and casualty industry as a whole and for the workers’ compensation segment in particular,” explains Marshall Kornblatt, executive vice president of insurance operations for Berkshire Hathaway GUARD Insurance Companies. “Rates have been rising to more adequate levels and loss ratios are improving.”

Even in the midst of a somewhat tighter market, Paul Halter, CIC, CRM, CPCU, executive vice president at Patriot National Insurance Group, saw some “fierce competition” in 2013. We expected more price firming and a decreased tendency among carriers to apply for credits just to buy market share,” he explains. “Instead, some carriers were more generous with schedule crediting than they probably should have been, given loss experience, and some companies were leveraging workers compensation to secure other lines of business.”

“This year, we’re seeing the capacity for multi-state accounts, tougher classes, and accounts with shock losses and gaps in coverage continue to erode.”

Greg Brittain, Senior Underwriter

Greg Brittain, senior underwriter at Empire Underwriters, LLC, identifies factors that point to market tightening in 2014. “Last year, we saw one significant workers’ comp carrier go into receivership and another major carrier had its financial strength rating reduced,” he explains. “This year, we’re seeing capacity for multi-state accounts, tougher classes, and accounts with shock losses and gaps in coverage continue to erode.”

Kornblatt adds, “Rating downgrades among carriers emphasizes the need for continued discipline in underwriting and pricing risks.” He says further increases are still needed to improve the historically weak performance of the line and to keep up with rising claims costs.

“With some insurers doing badly in a good year, more failures and downgrades may occur unless carriers resist the temptation to price to the competition instead of the exposure,” Kornblatt notes. “As a result, agents are well advised to keep a close watch over the insurance companies they represent.”

Experts are focused on more than pricing and rate adequacy. “‘Medical cost containment’ and ‘an aging workforce’ seem to be the buzz phrases this year,” explains Mike Mathews, president, Workers Compensation Division, at Atlas General Insurance Services, LLC. “The significant changes in an employee’s healthcare coverage have an effect on the workers’ compensation system.

Matthews adds, “Uncertainty around health benefits tends to give rise to additional frequency in workers compensation claims. In addition, employees are remaining in the workforce longer and injuries normally related to the aging process are finding their way into the workers’ compensation system.”

Toward the end of 2013, one carrier introduced a new program designed to serve a specific segment of the market. “We launched Sole Proprietor Solution, Inc., to offer workers comp to sole proprietors who have no employees, no uninsured subcontractors, and no day laborers,” explains Rick Pettit, marketing manager at Mid Atlantic Insurance Services. The program, which is available in 30-some states and in most class codes, incorporates 24-hour accident coverage for the owner, along with the workers’ comp policy.

“Many agents and brokers write what’s known as ‘Ghost Policies’ for sole proprietor clients and for subcontractors hired by their clients,” Pettit notes. “These provide no actual comp coverage since the sole proprietor is excluded, but they enable clients to provide insurance certificates to satisfy the hiring firm’s requirement.”

He points out that typical ghost policies often are placed in assigned risk pools. “These usually include a mid-term audit, which often is incorrect,” he adds. “This can cause the agent headaches correcting it. Also, assigned risk carriers change every few years, causing these policies to be rewritten and the same problems to recur.”

The new program offers a permanent placement for these policies, which results in less work for the agent, Pettit explains. “Intense upfront screening all but assures the sole proprietor has no employees and doesn’t plan to hire any, so the potential for additional premium audits is greatly reduced. The accident policy on the owner offers protection he or she doesn’t get with a standard ghost policy.”

Market success

In a shifting market, Matthews encourages agents and brokers to identify classes that are feeling market pain. “Businesses that are seeing greatest increases may be more receptive to new ideas and new solutions,” he explains. “Incorporate class codes and renewal dates into your marketing strategy as a way to grow your business.”

Brittain says agents and brokers may need to explore alternative and creative solutions. “These could include increasing deductibles,” he explains, “or researching the use of an administrative services organization (ASO) or professional employer organization (PEO) model for some of their troubled accounts.”

Greg Brittain, Senior Underwriter

Brittain says agents and brokers may need to explore alternative and creative solutions. “These could include increasing deductibles,” he explains, “or researching the use of an administrative services organization (ASO) or professional employer organization (PEO) model for some of their troubled accounts.”

Dave Simmons, vice president of sales at Berkshire Hathaway GUARD Insurance Companies, encourages agents and brokers to align themselves with carriers that are consistently profitable, fiscally responsible, very stable, and highly rated by independent sources such as A.M. Best. “An important part of the agent’s job is to help customers understand the meaning and impact of market changes,” he explains.

“It’s important to monitor carrier results and work companies that provide superior service,” Simmons adds, “while remaining consistent in their underwriting appetite and price.”

“One common view is that the agent or broker is charged with securing the best pricing for an account,” adds Halter. “In this economy, it is certainly understandable that businesses are trying to manage expenses. However, it’s more important that the agent make every attempt possible to match the prospect with a carrier that understands and specializes in the insured’s business.”

Halter also encourages agents to educate prospects and clients on what drivers determine ultimate premiums, as well as service differences between insurers.

Simmons notes, “Insurance is a relationship business, so agents who want to grow their books should be looking to establish new relationships. Superior service delivered to prospects through timely proposals, expert risk analyses, and professional advice can cultivate new relationships. Superior service to existing clients will cultivate renewals.”

He adds, “Some producers shy away from handling their clients’ workers’ comp coverage needs. They shouldn’t. Addressing all of a business’s insurance requirements will improve his or her likelihood of retaining and growing the account, which earns more commission dollars and adds to the bottom line.

“Also,” he says, “agents should look to place their workers’ compensation coverage with carriers that specialize in this line and have a superior claims organization. This expertise will help improve the client’s loss ratio and lead to greater customer satisfaction.

Serving clients

“Workers compensation is one of the only lines of insurance where information about specific insureds is readily available,” explains Matthews. “Providing clients’ comparables for their insurance costs can be a valuable tool to help solidify relationships and help an insurance broker be viewed as a trusted advisor. Ask who your client’s competitors are and show how they rank via their experience modification factors.”

Simmons encourages agents and brokers to establish frequent contact and communication. “This dialogue will help them better identify their customers’ needs, which is the first step in fulfilling them,” he explains. “Agents who rely solely upon selling price will ultimately lose that business because of the price.”

He suggests performing a comprehensive annual risk assessment. “Ask, ‘How is the business changing? What training and education can be provided? Are payrolls being reported accurately to avoid surprises at audit time?’” he advises. “Thorough analysis takes time, but it builds long-term relationships.”

When an accident or injury does occur, make sure claims are reported promptly and are supported by return-to-work programs. “These steps help contain costs and reduce premiums,” he notes, “which earns client loyalty.

“In an increasing rate environment, it is more important than ever to prepare your clients for expected costs at renewal,” Matthews explains. “Too many brokers don’t do this, as they are afraid they may get ‘shopped.’ Not properly preparing your client and bringing a ‘surprise’ increase is a recipe for losing business the following year.”

“Agents need to sharpen their skills on selling troubled accounts to underwriters,” says Brittain. “Extensive and detailed narratives of the business, what they are doing to mitigate claims, and explanation of losses all are critical.”

Greg Brittain, Senior Underwriter

“Agents need to sharpen their skills on selling troubled accounts to underwriters,” says Brittain. “Extensive and detailed narratives of the business, what they are doing to mitigate claims, and explanation of losses all are critical.”

Brittain adds, “If you don’t have a loss control specialist in-house, consider partnering with an independent to help your client implement sound practices to reduce claims.”

Pettit says, “Don’t just look for the lowest price, but focus on the loss control and claims handling capabilities of the carrier.

“Monitor your clients’ claims, especially the open ones, and pay close attention to NCCI Mod Worksheet for accuracy by cross-referencing loss runs and audits with NCCI payroll and loss data,” he adds. “Software is available to provide the client with information such as the impact of a particular claim on the mod. The software can provide the agent with the ability to project the next year’s mod 12 months out.”

“Educate the insured on the parameters of the workers’ compensation insurance premium,” explains Halter. “Stress to the insured that the insurance company is not an adversary, but rather a resource that can help reduce their financial impact of premiums and losses.”

Parting counsel

Simmons warns that agents and brokers can’t afford to be moving client business annually simply because of poor carrier performance or changes in underwriting appetite. “While price cannot be ignored, agents must help their clients see the big picture – selling their services and those of their carriers as the best way to ensure financial security and long-term savings,” he explains.

Pettit suggests investing in software, such as Mod Master through Zywave, that provides reports and analysis that can be given to clients. “This sets you apart from your competitors and helps insureds understand the NCCI Mod Worksheet,” he explains. “It’s amazing how many insureds don’t understand this. Many don’t even know what it is.”

“Review your renewals early – 90 days prior – to anticipate significant increases due to losses, substantial increases in experience modifications and possible non-renewals due to change in carrier appetite or account loss ratio,” Brittain advises “The more lead time you have to formulate a renewal strategy the better. In other words, agents and brokers need to be even more proactive in this new competitive environment.”

Greg Brittain, Senior Underwriter

“Review your renewals early – 90 days prior – to anticipate significant increases due to losses, substantial increases in experience modifications and possible non-renewals due to change in carrier appetite or account loss ratio,” Brittain advises “The more lead time you have to formulate a renewal strategy the better. In other words, agents and brokers need to be even more proactive in this new competitive environment.”

Kornblatt says that forward-thinking agents will continually look for ways to improve every distribution channel utilized and differentiate themselves by offering services that many competitors cannot. “One key way of doing so may be fully understanding and providing various payroll options, including the ways in which pay-as-you-go and self-reporting alternatives can be helpful in better managing their income and cash flow,” he explains.

“Also, when selecting insurers, devote equal attention to growth in sales and success in maintaining a profitable combined ratio,” Kornblatt adds. “When you pick a partner that does both well, you’ll have a resource in your shop that is aggressive in writing business but balanced by good management and sound operations.

Halter’s advice is simple: “First, quit selling price. Second, be a professional enterprise risk management consultant. Match the needs of the insured with the insurance company that best addresses the needs of their client. Focus on long-term relationships with the insured and the insurance company.”

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