Taking Care of Business: Workers’ Comp Opportunities in a Soft Market

Workers’ compensation is getting the job done. Premiums are decreasing, claims are stable and retention is high.

But even good news can present its own set of challenges, Burns & Wilcox indicated in its webinar, Navigating a Soft Workers’ Compensation Market, which explored the state of the market and how agents can find and take advantage of available opportunities.

A Profitable Soft Market

“It’s a little longer for some states, but nationwide we’re on an eight-year soft market, which is probably the only line that is a soft market right now,” said Justin Dorman, workers’ compensation national product manager for Burns & Wilcox, who is based in Charleston, South Carolina.

Most markets are hard right now, so “why are we still in a soft market? And really, it’s because workers’ comp is still profitable,” Dorman said. “It’s highly desired by most carriers, and most carriers are writing other lines of business and including work comp, requiring work comp, because it is profitable and allows them to write other business that maybe [is] not as profitable.”

The net written premium for private carriers for 2021 was $38.2 billion, only up over half a percent over 2020, said Burns & Wilcox workers’ compensation underwriter Morgan McCoy, also based in Charleston. “However, in the first two quarters of 2022, it was a 10% increase just for those two quarters. So, it looks like 2022 is going to be much higher.”

Without the restrictions seen in the excess and surplus (E&S) markets, you can write an almost unlimited capacity, Dorman said. Because workers’ comp rates are determined retrospectively, carriers can confidently project that rates will continue to drop over the next few years.

Plus, there are not a lot of surprises when it comes to workers’ comp claims, Dorman added.

“Frequency has been basically flat over the last couple years,” Dorman said. “Severities are up a tick but not enough to warrant any big changes.”

He added that they’re “seeing some of these larger claims arise, but with less frequency, carriers are still able to control their profit margins on that.”

Safety innovations and automation, OSHA guidelines and better safety management are helping to keep workers a lot safer, Dorman said. “We’re always going to have the claims — we’re human and we make mistakes — but they’re trending in a good direction.”

Unlike some other lines, workers’ compensation isn’t severely impacted by losses caused by hurricanes, wildfires and other catastrophic events, he added.

Challenges

Writing new workers’ comp business can be a challenge for agents because rates are low and employers aren’t shopping around for lower coverage prices, the presenters noted.

Insureds “are tending to stay with the carrier for a longer period of time, so it’s much harder to write new business for agents,” McCoy said.

In the high retention market, communication with the client and finding out what they need is key to offering coverage that is a better fit, Dorman said.

“They may have a lower renewal quote, but they do not like this carrier’s audits or their billing system or something like that,” he said. “Now is the time to find out what they need and use that as leverage to get their workers’ comp, because the general thing is that work comp is the foot into the door for the whole package.”

Bringing the whole agency in on every line of business will encourage agents to look for openings that could be useful to other teams.

The mass shift to working from home is one area that also has presented some challenges in the workers’ comp line.

“Depending on the state, there’s different wording on what’s covered and what’s not covered when you’re working from home, and really there’s a lot of gray area,” Dorman said. “It could be a lot harder to write than you would think.”

He said the telecommuting class is clerical and has low rates, but that means a single large claim can render an account unprofitable.

Outlook

What does inflation mean for workers’ compensatoin? Under current conditions, inflation would balance out the decrease in premiums, Dorman said. “Usually, it leads to higher payroll, and workers’ comp is based off of payroll. It’s going to keep those premiums around where they were even though the rates are decreasing.”

He added that the opposite would happen if the economy goes into recession. In 2005, economic changes led to a wave of audits that resulted in returned premiums, Dorman said.

“If you see trends, talk to your clients, and they’ll really appreciate that, too, especially if it’s something where they would owe extra money on an audit,” he said.

“Carriers’ appetites are changing, so in the last couple years, you’ve seen them expand what they’re looking for as far as classes,” Dorman said. But he added that eventually, a hardening workers’ comp market might cause carriers to withdraw from certain classes or the industry in general.

Staying on top of the shifting market means agents can create seamless coverage for clients if their carrier drops their class.

Since retention rates are so high, McCoy said many agents are going after new ventures. Higher risk pools are looking more appealing, he said.

“There are not too many things we’re going to decline right off the bat,” McCoy said.

Dorman said there’s also a market for non-renewal business, depending on the reason for non-renewal. If insureds are upfront about the causes of their non-renewal, it’s easier for agents to find carriers willing to take on those specific issues in a short time frame.

Specialty Solutions

New, specialized markets are one place agents can go to grow their clientele.

“Cannabis is starting to boom everywhere, and we do have a market that is all that they are looking for,” Morgan said. “Before, there were hardly any carriers at all that would look at that class, but now they are starting to open up, be more open-minded about it.”

There is also a broader appetite for higher-risk classes such as tree trimming, roofing, trucking and home health care, especially skilled nursing, he added. But in the end, it all falls back to old-fashioned legwork and customer service.

“Get out there, knock on some doors, call some people, ask them what they’re doing with their work comp because they probably aren’t even thinking about it,” Dorman said. “Work comp is a foot in the door to the whole account.”

Topics Workers' Compensation Pricing Trends Market