Falling off of a 26-foot ladder. Taking a header down a flight of stairs. Even slamming a hand in a door or spilling a pot of freshly brewed coffee is a possible hazard in the course of a normal workday.
That’s where workers’ compensation insurance comes in. For employees, the insurance that picks up 100% of costs related to a workplace-related injury is not something that comes to mind unless an injury occurs.
As vital workers’ comp insurance is to employers and employees alike—albeit for different reasons—the face of the national market is shrinking. An industry that boasted $47.5 billion in net written premiums in 2005 dropped for the third consecutive year to $39 billion, according to workers’ comp data collection organization The National Council on Compensation Insurance.
That means the Louisiana workers’ comp market, heavy with competition and profitable since the 1990s, has shrunk in accordance with the national market. Louisiana workers’ comp companies collected $956,353,175 in premiums for 2007, according to the National Association of Insurance Commissioners. In 2008, that amount was reduced to $855,597,417—a $101 million difference.
The current economic recession is partially to blame, reducing employer payrolls because of layoffs, furloughs and pay cuts. Because payroll forms the basis of exposure for premiums, a smaller payroll means a reduction in workers’ comp premiums to be paid. Fewer premiums collected translate into less revenue for the state’s workers’ comp industry.
“The economy has slowed a bit,” says David Bondy, CEO of LUBA Workers’ Comp, which posted a 0.6% revenue decrease in 2008. “That means we have to work even harder to overcome the slowdown. In my opinion, our company has had good success in that regard.”
But decreased 2008 revenues cannot be blamed solely on the economy. Louisiana was buffered from much of the economic turmoil that surfaced in late 2008, causing most payrolls to remain relatively stable throughout the end of the year.
So what explains the gap? Lower premiums, says Kristin Wall, president and CEO of Louisiana Workers’ Compensation Corporation. Lower premium rates automatically mean less revenue because workers’ comp companies are charging less, period.
Premium rates are generally guided by NCCI, which collects data from class codes that estimates how much an employer pays in for each employee by profession and the risk of injury associated with it. For example, an employee who works a clerical position would cost 82 cents of $100, while a logger would clock in around $15 of that same $100, says Tim Dietrich, CEO of Stonetrust Commercial Insurance Company, which posted a 4.3% decrease in revenue for 2008.
NCCI then publishes recommended premium rates for each class code that individual workers’ comp companies take into account when structuring their own premium rates.
“We all compete with one another just like any other business,” Dietrich says. “The NCCI codes are just a starting point. For the past 15 years, workers’ compensation has been very profitable in Louisiana.”
LWCC recorded a 16.6% drop in revenue for 2008 and, according to Wall, premium rates have declined 53% in 18 years of business. The decreases have occurred for a plethora of reasons, although one underlying cause might be the dramatically reduced rate of injured worker payouts per year. Nationally, the frequency of lost-time claims per 100,000 workers dropped by 4% in 2008, an increase from the 2.6% drop reported in 2007, according to NCCI.
“It’s been a very dramatic decrease if you take the long view,” says Michael Morris, CEO of the HomeBuilders Self Insurers Fund, which writes 3,000 policies for members of the Louisiana Builders Association and reported a 2.4% decrease in revenue for 2008. “When you think about what we do now versus what we used to do, we seem to be a little bit further ahead than we were in years past in terms of safety and the types of equipment and technology being used in the workplace.”
But revenue lost in the name of rate reductions is not a bad thing, Wall says, because it benefits policyholders. LWCC, although established by the state in 1991, is a private domestic mutual company owned by policyholders and, ultimately, allegiance is to them, Wall says.
Dietrich says Stonetrust has made up revenues lost in Louisiana from writing policies in Mississippi, Arkansas, Oklahoma and Texas. LUBA plans to expand in Mississippi and Arkansas by the end of the year and Texas within 18 months.
“We believe that diversifying geographically will be a good thing for us,” Bondy says. LUBA writes 4,500 policies in Louisiana. “As we move into other states, we’re excited because we’re a Louisiana company that is successfully operating regionally.”
The full affect of the current economic recession will be felt across all industries for the 2009 fiscal year and into 2010, Wall says, but the unknown is not necessarily cause for worry.
“You’re always looking at things, but the numbers are the numbers,” Wall says. “This is a phenomenon happening all across the country. Worried? No. It is what it is.”
ACROSS THE BOARD
Five workers’ comp companies made Business Report’s Top 100 list this year. All posted decreases in revenue from 2007 to 2008. Here are the numbers:
HomeBuilders Self Insurers Fund
$30,531,922 (2007)
$29,778,485 (2008)
2.4% decrease
LEMIC Insurance Company
$28,397,000 (2007)
$26,052,000 (2008)
8.2% decrease
Louisiana Workers’ Compensation Corporation
$271,633,879 (2007)
$226,533,90 (2008) 16.6% decrease
LUBA Workers’ Comp
$72,000,000 (2007)
$71,500,000 (2008)
0.6% decrease
Stonetrust Commercial Insurance Company
$30,200,000 (2007)
$28,900,000 (2008)
4.3% decrease
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