2021 State of the Line Guide

Posted Date: May 11, 2021  


Introduction

NCCI’s annual State of the Line presentation provides an exclusive review of trends, cost drivers, and significant developments shaping the workers compensation (WC) industry. This State of the Line Guide provides a slide-by-slide examination of the key takeaways, data sources, and formulas underlying the State of the Line presentation.

As you review the information contained in this Guide, it may be useful to keep in mind the following market indicators and trends that were highlighted in NCCI’s 2021 State of the Line presentation:

  • The workers compensation Calendar Year 2020 combined ratio for private carriers was 87%. This is the seventh consecutive year that the workers compensation line of business has posted an underwriting gain.
  • NCCI estimates that, as of year-end 2020, the overall reserve position for private carriers is a $14 billion redundancy.
  • Average lost-time claim frequency across NCCI states declined by 7% in 2020, on a preliminary basis.
  • In NCCI states, the preliminary Accident Year 2020 average indemnity claim severity increased by 3% relative to the corresponding 2019 value. Medical lost-time claim severity is expected to change within –2% to +2%.
  • The workers compensation Residual Market Pool premium volume was approximately $800 million during 2020, representing a residual market share of about 6.5%.

We hope you find the 2021 State of the Line Guide both a beneficial and informative resource.

WC Premium

Net Written Premium

Key Takeaways

  • The 2020 net written premium for private carriers is $38B
  • Once state fund premium is added in, the net written premium total is $42B, representing a 10% decrease from 2019
  • The decline in net written premium is largely a result of the drop in employment experienced during 2020

Background

This slide displays WC net written premium by year, separately for private carriers and state funds.

In the context of the State of the Line presentation, NCCI’s definition of state funds includes only those carriers that are both members of the American Association of State Compensation Insurance Funds and largely exempt from paying federal income taxes. All other carriers are included in the private carrier values.

Data

  • National Association of Insurance Commissioners’ (NAIC’s) Annual Statement data
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because additional data submissions may still be received by the NAIC.

Premium values in the underlying table are in billions of dollars.

Residual Market Premium

Key Takeaway

  • Premium for the NCCI-serviced Residual Market Pools has been approximately $1 billion for the last several years, with small year-over-year declines since 2015. The years 2019 and 2020 had more significant decreases of 12.5% and 8.7%, respectively, falling below $1 billion.

Background

Insureds that are unable to obtain coverage in the voluntary market can secure coverage through the Residual Market Pool in participating states. The estimated ultimate premium for all Residual Market Pools serviced by NCCI is displayed by policy year.

Data

  • Pool data for all NCCI-serviced WC Residual Market Pool states, valued as of 12/31/2020
  • Tennessee Reinsurance Mechanism premium is not included
  • NCCI’s Residual Market Quarterly Results

Residual market premium values in the underlying table are in billions of dollars.

Residual Market Share

Key Takeaway

  • The residual market share continues to decline through 2020, and it is now approximately 6.5%

Background

Pool and direct assignment premium for all NCCI-serviced Residual Market Pool states as a percentage of total WC market premium is displayed by calendar year.

Data

  • Pool and direct assignment data for all NCCI-serviced WC Residual Market Pool states, valued as of 12/31/2020
  • NCCI’s Residual Market Management Summary

Residual market shares in the underlying table are in percentages.

Direct Written Premium Change—2020

Key Takeaway

  • Between 2019 and 2020, the change in countrywide private carrier direct written premium is a decrease of 8.7%

Background

Underlying the change in countrywide private carrier direct written premium volume are the changes in premium volume by individual jurisdiction. The percentage changes depicted on the map exclude monopolistic fund states. Orange represents premium volume increases, while blue represents premium volume decreases. The deeper colors represent larger magnitudes of change.

Data

  • NAIC’s Annual Statement Statutory Page 14 for calendar year written premium by state

Direct written premium changes in the underlying table are in percentages.

US Employment Gap and New COVID-19 Cases

Key Takeaways

  • Employment numbers indicate the labor market was 21 million jobs below the expected level by April—an employment gap of –16%.
  • Despite new highs in new COVID-19 cases, job recovery from May to September was strong, closing the employment gap by more than half, to –7.5%.
  • COVID-19 cases surged in the winter months and the employment recovery slowed. By January 2021, the employment gap was –6.4%.
  • Job growth accelerated since January, with the employment gap in March at –5.4%.

Background

Tracking the number of jobs lost due to the COVID-19 pandemic, we estimate the expected employment level under non-COVID conditions. The employment gap is the difference between actual employment and the expected employment level.

Data

  • Centers for Disease Control and Prevention (CDC)
  • US Bureau of Labor Statistics
  • NCCI

COVID-19 case values were downloaded from the CDC website on April 4, 2021.

COVID-19 Job Losses Were Concentrated Among Low-Wage Earners

Key Takeaways

  • Employment losses since early 2020 have predominantly impacted low-wage workers, while higher earning workers have been comparatively unscathed
  • Almost 80% of the employment gap is attributable to jobs lost in low-wage sectors

Background

The employment gap is the difference between actual employment and expected employment.

Data

  • US Bureau of Labor Statistics
  • NCCI

Earnings data is not available by detailed economic sector for the latest month.

Payroll Change Includes Offsetting Employment and Wage Effects

Key Takeaways

  • Employment losses were –6.2% in 2020.
  • COVID-19 job losses were especially severe in the Big Four service sectors (shown in blue). Leisure and Hospitality was the hardest hit of all sectors with an employment gap of –22%.
  • The average weekly wage increased 7.4% in 2020. The high concentration of job losses among low-wage workers means that the average wage went up among workers who remained employed.
  • We estimate that the average annual wage increase to workers who remained employed in 2020 was 3%. This result is almost identical to 2019.
  • The remaining 4.3% is the mix effect. It is the change in the average weekly wage attributable to the disproportionate share of job losses among low-wage workers.

Background

The slide contains the annual change in employment by economic sector. The vertical gray line on the chart represents the average overall growth rate for employment.

The change in payroll is broken down into changes in employment and average weekly wage (AWW). We further decompose the change in AWW into a wage change for workers who remained employed and a component that reflects the effect of the change in the wage distribution.

Data

  • Moody’s Analytics
  • NCCI

Professional/Business/Other Services combines the Professional and Business Services sector with the Other Services sector. All Other combines the Wholesale Trade, Financial Activities, and Information sectors.

Forecasted values in the underlying table are in percentages.

Job Losses—Leisure and Hospitality

Key Takeaways

  • With 40% of national job losses, the Leisure and Hospitality sector has been far more impacted by the COVID-19 recession than any other part of the economy.
  • States that suffered the biggest losses of Leisure and Hospitality jobs are in the Northeast, Midwest, and on the West Coast, plus North Carolina, Alaska, and Hawaii. States that experienced milder job losses are mostly in the Southern tier of the United States and the Mountain West.
  • For every state group, the time path of job losses is similar: huge job losses in April and May, but followed by recovery to year-end. States that suffered the biggest job losses in April remained those with the biggest job losses in December, and vice versa.
  • A large amount of interstate variation in Leisure & Hospitality employment gaps remains at year-end.

Background

For Leisure and Hospitality, states are clustered by the paths of their employment gap.

Data

  • US Bureau of Labor Statistics
  • NCCI

Job Losses—Construction

Key Takeaways

  • The most severe job losses in Construction happened in spring, and this effect is most evident in the two most impacted state groups.
  • Job losses in Construction were much less severe than in service sectors during the pandemic’s initial months. Construction job losses throughout 2020 were 10% or less for most states.
  • States with the most severe Construction job losses at the beginning of the pandemic remained the most severely impacted at year-end, and vice versa.
  • Construction employment rebounded strongly in all states by about September. By the end of the summer, the least impacted group of states showed job gains relative to prepandemic levels.

Background

For Construction, states are clustered by the paths of their employment gap.

Data

  • US Bureau of Labor Statistics
  • NCCI

Direct Written Premium Change by Component

Key Takeaways

  • For NCCI states, private carrier direct written premium volume decreased by 6.6% between 2019 and 2020
  • The change in loss cost is the major contributor to the premium decrease, while the magnitude of the changes in payroll and other factors is much less than in prior years

Background

This slide provides the major components impacting the overall change in private carrier direct written premium for all states where NCCI provides ratemaking services.

The Other Factors category may include changes in audit impacts, average experience mod, deductible credit types or amounts, mix of policy types, or mix between private carrier and either state fund or self-insured markets.

Data

  • Direct written premium change: NAIC’s Annual Statement Statutory Page 14
  • Components: NCCI’s Policy data

Approved Changes in Bureau Premium Level

Key Takeaway

  • As a result of NCCI filings, written premiums are expected to decrease by an average of 5.6% from 2020 to 2021

Background

The bureau premium level changes shown here reflect the approved changes in advisory rates, loss costs, and assigned risk rates as filed in jurisdictions where NCCI provides ratemaking services, as of April 30, 2021.

The percentage changes by state, which reflect the impact on written premium (from one year to the next) due to NCCI filing activity, are weighted using calendar year (CY) direct written premium as reported to the NAIC. The changes shown reflect several factors that impact NCCI filings, such as changes in claim frequency and severity, changes in the economy, cost containment initiatives, legislative reforms, and judicial decisions. Texas is included beginning with CY 2011 and West Virginia beginning with CY 2008.

This methodology reflects the effective date of each state’s filing when determining the impact on written premium from one year to the next.

Data

  • NAIC’s Annual Statement Statutory Page 14

The value for the most recent year is preliminary because there may be additional filing approvals with effective dates in 2021.

Approved changes in bureau premium level in the underlying table are in percentages.

Most Recent Changes in Bureau Premium Level

Key Takeaway

  • The most recent filings resulted in decreases for all but six NCCI jurisdictions

Background

This slide displays the most recent approved change (or filed and pending change) in voluntary market advisory rates or loss costs in each jurisdiction where NCCI provides ratemaking services as of April 30, 2021. Law-only filings are not included in this analysis.

In the slide, orange represents premium level increases, while blue represents premium level decreases. The deeper colors represent larger magnitudes of change.

Data

Changes in bureau premium level in the underlying table are in percentages.

WC Results

Net Combined Ratio

Key Takeaways

  • The 2020 private carrier combined ratio of 87% marks the fourth consecutive year of results under 90% and the seventh consecutive year of underwriting gains
  • This is the third-lowest workers compensation combined ratio since the 1930s

Background

This slide shows workers compensation combined ratios. A combined ratio is the sum of the loss ratio, loss adjustment expense (LAE) ratio, dividend ratio, and underwriting expense ratio. The loss, LAE, and dividend ratios are calculated as ratios to net earned premium. The underwriting expense ratio is calculated as a ratio to net written premium to provide a better match of the timing of the numerator and denominator.

Data

  • NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because additional data submissions may still be received by the NAIC.

Combined ratios in the underlying table are in percentages. Information for state funds is included for informational purposes.

Net Combined Ratio by Component

Key Takeaways

  • The loss ratio underlying the 2020 combined ratio is the primary driver of the low combined ratio
  • The years 2018 to 2020 have been the lowest loss ratios in at least 30 years
  • LAE is at its lowest level since the early 1990s
  • The underwriting expenses and dividends as ratios to premium have recently been relatively stable

Background

This slide shows the components of the workers compensation calendar year net combined ratios. The loss ratios in this slide compare net incurred losses to net earned premium. The loss ratio is the largest component of the combined ratio. The loss adjustment expense (LAE) ratio compares net incurred LAE to net earned premium. LAE includes both defense and cost containment expenses (DCCE) plus adjusting and other expenses. The underwriting expense ratio compares the costs associated with writing insurance to net written premium. The underwriting expenses included in the ratio are:

  • Commission and brokerage expenses
  • Taxes, licenses, and fees
  • Other acquisition expenses
  • General expenses

Policyholder dividends are the smallest component of the combined ratio and are compared to net earned premium.

Data

  • NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because additional data submissions may still be received by the NAIC.

Values in the underlying table are in percentages.

Investment Gain on Insurance Transactions

Key Takeaways

  • The preliminary WC investment gain on insurance transactions is a small increase to 11% in 2020
  • This remains below the long-term average of 12.2%

Background

The overall investment gain is allocated by line of business according to the NAIC-prescribed allocation procedure.

The WC investment gain on insurance transactions (IGIT) ratio measures investment performance by comparing investment income allocated to the WC line of business to WC earned premium.

Data

  • NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because additional data submissions may still be received by the NAIC.

Investment gain ratios in the underlying table are in percentages.

Pretax Operating Gain

Key Takeaways

  • A slight improvement in the investment gain ratio was offset by the 2-point increase in the combined ratio resulting in a 24-point operating gain
  • This is the fourth straight year with results over 20%, the highest figures we’ve seen going back at least 30 years
  • Underwriting gains due to lower loss ratios have driven recent years’ above-average operating gains

Background

The pretax operating gain in this slide measures the overall financial performance of the workers compensation line by considering both underwriting income and investment income. Pretax operating gain excludes direct changes to surplus, including, but not limited to, changes in:

  • Unrealized capital gains
  • Unrealized foreign exchange gain
  • Net deferred income tax
  • Nonadmitted assets
  • The provision for reinsurance
  • Surplus notes

Data

  • NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because additional data submissions may still be received by the NAIC.

Pretax operating gains in the underlying table are in percentages. Data for state funds is included for informational purposes.

Net Combined Ratios—CY vs. AY As Reported

Key Takeaways

  • The Accident Year (AY) 2020 net combined ratio is 100%
  • The ratios for both the latest CY and AY (2020) have increased compared to the second latest year (2019)

Background

In this slide, the overall private carrier workers compensation net combined ratios are shown for the most recent 10 years on both CY and AY bases. Each AY combined ratio reflects the experience on accidents as of the latest data evaluation date. See the Background section of WC Combined Ratio for more information.

Data

  • NAIC’s Annual Statement, Schedule P, Part 1D
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The calendar year value for the most recent year is preliminary because additional data submissions may still be received by the NAIC. The AY values will change as losses develop to an ultimate level.

Combined ratios in the underlying table are in percentages.

Net Combined Ratios—NCCI’s AY Selections vs. As Reported

Key Takeaways

  • For the years shown on this chart, NCCI’s selections suggest that carrier-reported combined ratios for the most recent AYs will trend downwards over subsequent valuations
  • The As Reported combined ratios for each of the AY shown (other than AY 2020) have developed downward over time, some by up to 10 percentage points since the first report
  • NCCI expects that AY 2020 combined ratio will develop downward over time

Background

In this slide, NCCI’s selected net combined ratios are compared to reported private carrier workers compensation net combined ratios. The values are shown for the most recent 10 years on an accident year (AY) basis. Each AY combined ratio reflects the experience on accidents as of the latest data evaluation date. See the Background section of WC Combined Ratio for more information.

Data

  • NAIC’s Annual Statement, Schedule P, Part 1D
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

Combined ratios in the underlying table are in percentages.

Net Loss and LAE Ratios—NCCI’s AY Selections vs. As Reported

Key Takeaways

  • The largest differences between NCCI Selections and the As Reported values are in AYs 2017-2020, which contribute the most to the overall estimated reserve redundancy
  • For every year displayed, NCCI believes the current As Reported AY results will trend downward over subsequent valuations, and the more recent years will do so significantly

Background

The accident year (AY) net incurred loss and LAE ratio is calculated as a ratio of AY net losses and LAE to CY earned premium. The values in this slide compare NCCI selections to those reported at the latest evaluation by private carriers.

For a given AY, a deficiency is reflected where NCCI’s selected net loss and LAE ratio is higher than the reported value by carriers; a redundancy is reflected where NCCI’s selected net loss and LAE ratio is lower than the value reported by carriers.

Data

  • NAIC’s Annual Statement, Schedule P, Part 1D

Net loss and LAE ratios in the underlying table are in percentages.

Net Loss and LAE Reserve Adequacy

Key Takeaways

  • NCCI’s estimate of the year-end 2020 overall reserve adequacy is a $14 billion redundancy, which is a $4 billion change from year-end 2019, despite calendar year reserve releases
  • Without the $3.8 billion tabular discount, there would be an even greater redundancy

Background

The net reserve deficiency is the dollar difference (in billions) between NCCI’s estimate of net loss and LAE reserves and the reported private carrier net loss and LAE reserves.

The overall workers compensation net reserve adequacy is calculated for all accident years combined at each year-end valuation.

A positive value on this slide indicates an overall reserve deficiency. A negative value on this slide indicates an overall reserve redundancy.

Data

  • NAIC’s Annual Statement, Schedule P, Part 1D

Redundancies and deficiencies in the underlying table are in billions of dollars.

P&C Results

Net Written Premium Growth

Key Takeaways

  • Total property and casualty (P&C) net written premium for private carriers increased by 2.3% to almost $649 billion in 2020
  • All lines of business except Personal Auto and Workers Compensation had increases in net written premium

Background

The net written premium in this slide provides a measure of the size of each major line of business in the P&C insurance industry.

Data

  • NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because additional data submissions may still be received by the NAIC.

Quarterly Average Premium Changes

Key Takeaways

  • Workers Compensation premium changes turned positive in the most recent three quarters
  • Commercial Auto has consistently experienced increases of 8%-10% over the last few years
  • General Liability stabilized in 2020 while Umbrella continued to experience sharp increases quarter over quarter

Background

Survey respondents were asked to review recent renewals and determine how premium rates have changed over a specific period of time.

Each bar in the line-of-business group represents the premium change experienced by policies renewing in that quarter from Q1 2018 to Q4 2020.

These observations may be used to determine trends in pricing from one quarter to the next.

Data

  • The pricing survey was provided by The Council of Insurance Agents & Brokers

Net Combined Ratio

Key Takeaways

  • In 2020, the total P&C combined ratio for private carriers decreased 1 point, to 98
  • The combined ratio declined considerably for Personal Auto and Commercial Auto
  • Workers Compensation continues to be the most profitable of all the P&C lines of business

Background

The calendar year net combined ratios in this slide measure the overall performance of each line of business and the P&C industry as a whole. See the Background section of WC Combined Ratio for more information.

Data

  • NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The values for the most recent year are preliminary because additional data submissions may still be received by the NAIC.

Net Combined Ratio (by Year)

Key Takeaways

  • Private carriers have produced an underwriting profit in 9 of the 21 years displayed, including 6 of the last 8 years
  • The average combined ratio over the period is 101%

Background

This slide displays a longer history of the net combined ratios for the total P&C industry. See the Background section of WC Combined Ratio for more information.

Data

  • NAIC’s Annual Statement data: 2000–2008 and 2013–2020p
  • ISO: 2009–2012

The value for the most recent year is preliminary because additional data submissions may still be received by the NAIC.

Combined ratios in the underlying table are in percentages.

COVID-19 Losses

What Our Data Tells Us About COVID-19 Losses

Key Takeaways

  • COVID-19 incurred losses total $260M for Accident Year 2020
  • There are over 45K claims with some type of loss associated with them
  • A majority (75%) of COVID-19 claims with either an indemnity or medical loss component are lost-time claims
  • COVID-19 claims have an average severity of $6K

Background

This slide shows a summary of the COVID-19 claims reported on NCCI’s Financial Call #31 evaluated as of 12/31/2020. Values shown are based on large deductible and non-large deductible policies from private carriers and state funds for all jurisdictions where NCCI provides ratemaking services. The data does not include claims with zero dollars reported.

Data

  • NCCI’s Financial Call data

Reported COVID-19 Claim Count Surges Remained Consistent

Key Takeaways

  • The intensity of the surges in WC COVID-19 claims have been consistent. Despite the larger surge of COVID-19 cases from the broader population at the end of 2020, there was not a similar increase in intensity for WC COVID-19 claims.
  • The number of claims reported in the later months may be understated due to reporting lag.

Background

This slide shows the number of COVID-19 WC claims by accident date as reported on NCCI’s Financial Call #31 evaluated as of 12/31/2020. Values shown are based on large deductible and non-large deductible policies from private carriers and state funds for all jurisdictions where NCCI provides ratemaking services.

Data

  • NCCI’s Financial Call data

Majority of COVID-19 Claims Are Lost-Time Claims

Key Takeaways

  • Approximately 75% of COVID-19 claims include an indemnity component and are therefore lost-time claims, compared with approximately 25% of prepandemic claims.
  • Indemnity-only claims comprise a much larger portion of COVID-19 claims than they do for non-COVID-19 claims. These claims did not have any reported medical loss component. They were probably claimants who tested positive but who may have been asymptomatic and therefore required no medical services.
  • The most severe group of claims is the group that includes both an indemnity and medical component.

Background

This slide shows a breakdown of the distribution of COVID-19 claims by type of claim reported on NCCI’s Financial Call #31 evaluated as of 12/31/2020. Values shown are based on large deductible and non-large deductible policies from private carriers and state funds for all jurisdictions where NCCI provides ratemaking services.

Data

  • NCCI’s Financial Call data
  • NCCI’s Unit Statistical Plan data

COVID-19 Claims by Size of Loss

Key Takeaways

  • Approximately 60% of WC COVID-19 claims have incurred losses of less than $1,500. A majority of these claims are the indemnity-only or medical-only claims.
  • Approximately 95% of COVID-19 claims have incurred losses less than $10K.
  • Claims over $100K account for approximately 1% of total COVID-19 claims, but represent 60% of total COVID-19 losses.

Background

This slide shows a breakdown of the distribution of COVID-19 claims by size of loss reported on NCCI’s Financial Call #31 evaluated as of 12/31/2020. Values shown are based on large deductible and non-large deductible policies from private carriers and state funds for all jurisdictions where NCCI provides ratemaking services. The size of loss groupings is determined by total indemnity and medical paid+case reported for a claim.

Data

  • NCCI’s Financial Call data

Distribution of COVID-19 Claims by Industry

Key Takeaways

  • Healthcare and First Responders accounted for almost 75% of all WC COVID-19 claims
  • Other Essential Workers—mainly workers in restaurants, building operations, distribution systems, and retail—accounted for an additional 15% of WC COVID-19 claims

Background

This slide shows the distribution of COVID-19 claims as reported on NCCI’s Financial Call #31 evaluated as of 12/31/2020. These are grouped by industry based on the policy’s governing class code as reported in NCCI’s Policy data. Values shown are based on large deductible and non-large deductible policies from private carriers and state funds for all jurisdictions where NCCI provides ratemaking services.

Data

  • NCCI’s Financial Call data
  • NCCI’s Policy data

WC Loss Drivers

Lost-Time Claim Frequency

Key Takeaways

  • NCCI estimates that lost-time claim frequency for Accident Year 2020 will be 7% lower than that for Accident Year 2019
  • Pandemic-related shutdowns and increased use of telecommuting are likely contributors to the larger-than-average decline

Background

This slide displays changes in frequency (lost-time claims per million dollars of pure premium) for all jurisdictions where NCCI provides ratemaking services. The year-to-year changes are based on data for matched states.

Frequency is defined as lost-time claim counts (developed to an ultimate basis) per million dollars of premium. Premium is adjusted to current wage and voluntary pure premium levels. Data is valued as of 12/31/2019. However, Accident Year 2020 is based on preliminary data valued as of 12/31/2020. Accident Years 2010 and 2011 show adjusted values, primarily due to significant changes in audit activity due to the Great Recession. High-deductible policies are excluded from all years.

Data

  • NCCI’s Financial Call data. COVID-19 claims are excluded.

Values in the underlying table are in percentages.

Medical Lost-Time Claim Severity

Key Takeaways

  • Estimating the change in medical severity is challenging. At this early stage, how medical costs associated with claims that occurred in 2020 will ultimately develop is unknown.
  • Direct and indirect pandemic-related impacts have caused shifts in the overall percentage of medical-only claims, the distribution of workers compensation claims by injury type, and the utilization of hospital inpatient facilities.
  • Based on this uncertainty, NCCI estimates that the average medical lost-time claim severity for Accident Year 2020 will be between a -2% and +2% change from Accident Year 2019.
  • It is expected that the 2020 severity change will be lower than what we have observed in the recent past, and an overall average severity decline between 2019 and 2020 may be a possibility.

Background

This slide displays average medical lost-time claim severity based on data for all jurisdictions where NCCI provides ratemaking services. Accident Years prior to 2010 exclude West Virginia, prior to 2006 exclude Texas, and prior to 2004 exclude Nevada. High-deductible policies are excluded from all years. Severity represents ultimate medical losses divided by ultimate lost-time claim counts. Data is valued as of 12/31/2019. However, Accident Year 2020 is based on preliminary data values as of 12/31/2020.

Data

  • NCCI’s Financial Call data. COVID-19 claims are excluded.

Two medical lost-time claim severity values are shown in the underlying table for Accident Years 2004, 2006, and 2010. Accident Year 2004 is restated to exclude Nevada in order to match the states included in Accident Year 2003. Accident Year 2006 is restated to exclude Texas in order to match the states in Accident Year 2005. Accident Year 2010 is restated to exclude West Virginia in order to match the states in Accident Year 2009. This restatement ensures that each year’s severity change is based on the same group of states.

The severity shown for Accident Year 2020 is the midpoint of the estimated range for the medical severity.

Medical Lost-Time Claim Severity vs. Price Inflation

Key Takeaway

  • Medical lost-time claim severity in NCCI states has grown more than twice as fast as medical price inflation over the last 20 years—with much of that growth occurring in the early-to-mid 2000s.
  • Over the recent past, changes in medical lost-time claim severity have more closely tracked the growth in medical care prices.

Background

This slide compares the growth in average medical lost-time claim severity with the growth in the Personal Health Care Chain-Weighted Price Index (PHC). The PHC is a proxy for medical care price inflation that responds to changes in the blend of different medical services over time.

The year-to-year severity changes are based on data for unmatched states. The year a state is first included in the data, the countrywide severity change from the prior year may be influenced by the newly added state’s severity.

Both the WC average medical lost-time claim severity and PHC trend lines have been indexed to the year 2000. High-deductible policies are excluded from all years.

Data

  • Medical lost-time claim severity is from NCCI’s Financial Call data. COVID-19 claims are excluded.
  • PHC Chain-Weighted Price Index is from the Centers for Medicare & Medicaid Services.

Values in the underlying table are in percentages.

Indemnity Claim Severity

Key Takeaways

  • NCCI estimates that the average indemnity cost per claim for Accident Year 2020 will be 3% higher than that for Accident Year 2019
  • The severity change is consistent with annual indemnity severity changes seen over the last few years

Background

This slide displays average indemnity claim severity based on data for all jurisdictions where NCCI provides ratemaking services. Accident Years prior to 2010 exclude West Virginia, prior to 2006 exclude Texas, and prior to 2004 exclude Nevada. High-deductible policies are excluded from all years. Severity represents ultimate indemnity losses divided by ultimate lost-time claims. Data is valued as of 12/31/2019. However, Accident Year 2020 is based on preliminary data valued as of 12/31/2020.

Data

  • NCCI’s Financial Call data. COVID-19 claims are excluded.

Two indemnity severity values are shown in the underlying table for Accident Years 2004, 2006, and 2010. Accident Year 2004 is restated to exclude Nevada in order to match the states included in Accident Year 2003. Accident Year 2006 is restated to exclude Texas in order to match the states in Accident Year 2005. Accident Year 2010 is restated to exclude West Virginia in order to match the states in Accident Year 2009. This restatement ensures that each year’s severity change is based on the same group of states.

Indemnity Claim Severity vs. Wage Inflation

Key Takeaway

  • Since 2000, the change in indemnity claim severity has tracked the change in average wage quite closely

Background

This slide compares the growth in average indemnity claim severity with the growth in average weekly wages.

Average weekly wages between 2008 and 2011 were adjusted to compensate for exceptional volatility in bonuses for the financial sector during these years. The year-to-year severity changes are based on data for unmatched states. The year a state is first included in the data, the countrywide severity change from the prior year may be influenced by the newly added state’s severity.

Both the WC average indemnity claim severity and average weekly wage trend lines have been indexed to the year 2000. High-deductible policies are excluded from all years.

Data

  • Indemnity severity is from NCCI’s Financial Call data. COVID-19 claims are excluded.
  • US Average Weekly Wage is based on:
    1. Quarterly Census of Employment and Wages (QCEW) data from the US Bureau of Labor Statistics (BLS) for 2000–2007 and 2012–2019
    2. QCEW and average weekly earnings data from the BLS for 2008–2011; 2020p is estimated by NCCI using forecasts from Moody’s Analytics

Values in the underlying table are in percentages.

Legislative Landscape

Indemnity Data Call (IDC) Pathway

Background

In early 2018, the IDC received approval from the NCCI Board of Directors. Since then, NCCI has worked closely with industry stakeholders. Data reporter certification began in early 2020, and the first quarterly submission of IDC data was due by September 30, 2020.

NCCI has recently started to leverage the new Call data for targeted purposes.

Indemnity Data Call Uses to Date

Key Takeaway

  • The IDC has been used in COVID-19-related research and legislative analyses

Background

The start of the collection of the IDC aligned very closely with the start of the pandemic. As a result, we have been able to leverage this new Call in producing COVID-19-related research, as well as in legislative analyses addressing presumptions pertaining to exposure-only (i.e., quarantine) claims.

The ability to link the IDC with our other NCCI data sources has assisted with enhancing the quality and depth of the information we collect. This more robust data will expand the boundaries of NCCI research and further increase our ability to analyze legislative changes.

Telemedicine Legislative Actions Summary

Key Takeaways

  • Telemedicine was used sparingly before 2020 largely due to regulations and restrictions
  • Several rule changes facilitated the use of telemedicine during the pandemic
  • The success of telemedicine during the pandemic suggests that it could be a more viable option going forward

Background

Prior to COVID-19, telemedicine was used very infrequently, due in large part to legislation, regulation, and HIPAA privacy concerns.

During the pandemic, however, emergency orders and permanent rule changes facilitated the expansion of telemedicine. For example:

  • Additional applications were authorized for use
  • Requirements for obtaining prior written consent were suspended in some states
  • Reimbursement rules were modified, with some states setting telemedicine reimbursement levels equal to those for in-person services
  • The Centers for Medicare & Medicaid Services expanded the types of services that could be provided via telemedicine

Essentially, access to care via telemedicine has expanded significantly and therefore is expected to continue to be more widely used in the future.

COVID-19 State Presumption Actions—2020

Key Takeaway

  • In 2020, 16 states either passed legislation or took executive/regulatory action to provide workers compensation presumptions for COVID-19

Background

During 2020:

  • 9 states (shown in darker blue) passed presumptive legislation of some kind.
  • 7 other states (orange) implemented presumptions through executive or regulatory actions.
  • Another 12 states (lighter blue) considered presumption legislation that did not pass during the 2020 session.

Most of the presumptions implemented in 2020 focused on healthcare workers and first responders.

Data

  • Individual state websites

COVID-19 Claim Counts to Total Claim Counts

Key Takeaways

  • Lost-time COVID-19 claims represent approximately 7.4% of the total lost-time claim counts for all jurisdictions where NCCI provides ratemaking services.
  • The ratio of lost-time COVID-19 claims to total lost-time claims varies by jurisdiction from 1.3% for Montana to 28.4% for Kentucky.
  • States for which presumptive actions were implemented in 2020 are shown in blue. Lost-time COVID-19 claim counts tend to make up a larger share of total lost-time claims for these states.
  • The Kentucky value is likely influenced by that state’s executive order which provided a presumption that extended to workers removed from the workplace by a physician to self-quarantine due to exposure to COVID-19.

Background

This slide shows the ratio of lost-time COVID-19 claims to total Accident Year 2020 claims by jurisdiction as reported on NCCI’s Financial Calls evaluated as of 12/31/2020. Values shown are based on non-large deductible policies from private carriers and state funds for all jurisdictions where NCCI provides ratemaking services. This slide also identifies (in blue) the states that implemented presumptions in 2020.

Data

  • NCCI’s Financial Call data

COVID-19 State Presumption Actions—2021

Key Takeaway

  • In 2021, more than half of the states have considered or are considering presumption legislation of some type, with five states (shown in darker blue) passing such legislation so far

Background

To date in 2021:

  • 16 states have considered or are considering legislation to establish new workers compensation presumptions for COVID-19 for certain employees, with only Virginia enacting such legislation
  • Of the states that enacted legislation in 2020, 7 of them have considered or are considering legislation to extend or expand their COVID-19 presumptions, with 3 states (IL, VT, and WY) passing those bills
  • Another 6 states have considered or are considering presumption legislation that does not explicitly reference COVID-19 but would appear to be applicable to it (e.g., specifies infectious or contagious diseases), with 1 state (TN) enacting said legislation

As was the case in 2020, the 2021 presumption bills have generally been retroactive to the start of the pandemic. However, several of the bills in 2021 have expanded their scope of occupational groups that would be covered by such a presumption.

Data

  • Individual state websites as of April 15, 2021

Mental-Mental Injuries and Workers Compensation

Key Takeaways

  • Coverage of mental-mental injuries under workers compensation varies by state
  • Some state statutes only provide such coverage for specific occupations, like firefighters or police officers

Background

The issue of mental health has taken an even more prominent position in discussions across the country given the potential effects of the pandemic on healthcare workers, as well as more frequent reports of mass shootings in the workplace.

Mental-mental injury coverage under workers compensation is specific to situations where the claimant does not have a physical injury. The handling for these claims varies across states:

  • Some statutes specifically exclude WC coverage for mental-mental injuries
  • Some statutes specifically include it
  • Other statutes are silent, and claims are thereby guided by case law

For those that do provide coverage, it is often limited. A common limitation is when mental-mental injury coverage applies to specific occupations, such as police officers or firefighters.

Data

  • Individual state websites as of April 15, 2021

Note that West Virginia is listed as a state that specifically excludes WC coverage for mental-mental injuries, but it recently enacted legislation to provide such coverage to first responders beginning July 1, 2021.

Where Will PTSD/CTSD Coverage Come From?

Key Takeaways

  • There may be a growing need for mental health coverage of our workers
  • The legislatures and courts decide whether coverage exists under workers compensation
  • Potential areas for coverage include group health, wellness programs, and workers compensation

Background

Posttraumatic stress disorder (PTSD) and continuous traumatic stress disorder (CTSD) have been of particular concern for healthcare workers during the pandemic. While legislatures and the courts decide if and when treatment for mental health is covered under workers compensation, other avenues may exist for workers to get needed treatment, such as wellness programs and group health coverage.

Appendices

Appendix A—Definitions

Accident Year (AY)—A loss accounting term for experience that is summarized by the calendar year in which an accident occurred.

Adjusting and Other Expenses (AOE) Incurred—Loss adjustment expenses, other than those categorized as Defense and Cost Containment Expense. Examples:

  • Fees of adjusters and settling agents (but not if engaged in a contentious defense)
  • Attorney fees incurred in the determination of coverage, including litigation between the insurer and the policyholder

Assigned Carrier—The insurer assigned to provide residual market coverage to an eligible employer that has applied for workers compensation insurance under NCCI’s Workers Compensation Insurance Plan. An assigned carrier can be either a servicing carrier or direct assignment carrier.

Calendar Year (CY)—A method of accounting that includes all financial transactions occurring during a 12-month period, beginning January 1.

Carrier Discounting—Combined impact on premium due to rate/loss cost departures, schedule rating, and dividends.

Commissions and Brokerage Expenses Incurred—Fees paid to producers.

Defense and Cost Containment Expense (DCCE) Incurred—Expenses for defense by the insurer in contentious situations (whether a first-party or third-party claim) for litigation involving a claim and for cost containment expense. Examples:

  • Surveillance expenses
  • Fixed amounts for cost containment expenses
  • Case management expenses for managing the overall cost of a claim
  • Litigation management expenses
  • Fees or salaries for appraisers, private investigators, hearing representatives, reinspectors, and fraud investigators, if working in defense of a claim
  • Attorney fees incurred owing to a duty to defend
  • Cost of engaging experts

Direct Assignment—Assigned risk business written and serviced directly by an insurance company that has been authorized by the Insurance Department to write such business. These insureds are written without reinsurance through the National Workers Compensation Reinsurance Pooling Mechanism or other reinsurance pool.

Dividends to Policyholders—When actual costs and expenses are less than anticipated costs and expenses, carriers may opt to return the difference to policyholders in the form of a dividend.

Earned Premium—Proportional share of each policy’s written premium applicable to the expired part of the policy. Derived by subtracting the change in the unearned premium reserve from the written premium.

Estimated Annual Premium—Premium charged by an insurance company, at the time the policy is issued, for coverage provided by an insurance contract for a period of time. Estimated premium is reported before endorsements or audits.

Experience Mod—A factor calculated from actual case loss experience used to adjust an insured’s manual premiums (up or down) based on the insured’s loss experience relative to the average underlying the manual premiums. It compares the insured’s experience to the average class experience.

Exposure Accident Year (EAY):

  • Claims/Losses–Are on an accident year basis
  • Earned Premium–Final audited premium for each policy is allocated to the appropriate calendar year based on the period of exposure

General Expenses Incurred—Overhead expenses incurred in the insurer’s operations, other than those included in the other expense categories. Examples:

  • Salaries
  • Rent and rent items
  • Equipment

Net Written Premium—The gross premium income adjusted for additional or return premiums, including any additions for reinsurance assumed and deductions for reinsurance ceded.

Other Acquisitions, Field Supervision, and Collection Expenses Incurred—Expenses incurred in obtaining insurance business. Examples:

  • Salaries
  • Equipment
  • Advertising
  • Employee relations and welfare
  • Allowance to managers and agents
  • Postage, telephone, and express
  • Rent and rent items

Policy Year (PY)—The year of the effective date of the policy. Policy year financial results summarize experience for all policies with effective dates in a given calendar year period.

Pure Premium—Portion of bureau level premium that provides for indemnity and medical loss payments.

Residual Market Pool—A financial agreement among participating insurers to share in the experience of certain assigned risks. This reduces both administrative costs and annual fluctuations in the liability of participating insurers resulting from the operation of state insurance plans.

Servicing Carrier—An insurer, other than a direct assignment carrier, authorized to receive Plan assignments and provide coverage to eligible employers on behalf of insurance company members of the National Workers Compensation Reinsurance Association NFP (NWCRA)—or participants in other reinsurance pooling mechanisms—incorporated as a part of the Plan in a state.

Servicing Carrier Allowance—The ceding commission retained by a servicing carrier as compensation for the expenses of servicing an employer under a Workers Compensation Insurance Plan or similar program.

Taxes, Licenses, and Fees Incurred—State taxes, assessments, and miscellaneous fees. Examples:

  • Premium taxes
  • Second Injury Fund assessments
  • General administration funds
  • Guaranty funds

Unearned Premium Reserve—Proportional share of each policy’s written premium applicable to the unexpired part of the policy.

Workers Compensation Insurance Plan (WCIP or Plan)—A program established and maintained by NCCI and approved by state insurance regulatory authorities whereby workers compensation insurance may be secured by eligible employers unable to secure such coverage in the voluntary market.

Appendix B—Formulas

After-Tax Return on Surplus \[ =\frac{\small\text{Net Income}}{\small\text{Average Surplus}} \]

Average Surplus \[ =\small\text{0.5 x (Surplus as regards policyholders, December 31 current year} \\ \small\text{ + Surplus as regards policyholders, December 31 prior year)} \]

Combined Ratio \[ =\small\text{Loss Ratio + LAE Ratio + Dividend Ratio + Underwriting Expense Ratio} \] Combined Ratio (Residual Market Slides) \[ =\frac{\small\text{Losses}}{\small\text{Earned Premium}} + \frac{\small\text{Expenses and Allowances}}{\small\text{Written Premium}} \]

Dividend Ratio \[ =\frac{\small\text{Dividends to Policyholders}}{\small\text{Earned Premium}} \]

Indicated Net Loss & LAE Reserves \[ =\small\text{Ultimate Net Loss & LAE – Net Loss & LAE Payments} \]

Investment Gain on Insurance Transactions Ratio \[ =\frac{\small\text{Investment Gain on Funds Attributable to Insurance Transactions + Other Income Less Other Expenses}}{\small\text{Earned Premium}} \]

Investment Gain Ratio \[ =\frac{\small\text{Net Investment Gain (Loss)}}{\small\text{Earned Premium}} \]

Loss Adjustment Expense (LAE) Ratio \[ =\frac{\small\text{DCCE Incurred + AOE Incurred}}{\small\text{Earned Premium}} \]

Loss & LAE Ratio \[ =\frac{\small\text{Incurred Loss + DCCE Incurred + AOE Incurred}}{\small\text{Earned Premium}} \]

Loss Ratio \[ =\frac{\small\text{Incurred Loss}}{\small\text{Earned Premium}} \]

Net Earned Premium \[ =\small\text{Net Written Premium + Change in Unearned Premium Reserve} \]

Net Reserve Adequacy \[ =\small\text{NCCI Indicated Net Loss & LAE Reserves – Private Carrier Net Loss & LAE Reserves As Reported} \]

Premium-to-Surplus Ratio \[ =\frac{\small\text{Net Written Premium}}{\small\text{Surplus as regards policyholders}} \]

Pretax Operating Gain \[ =\small\text{1 – (Combined Ratio – Investment Gain on Insurance Transactions Ratio)} \]

Underwriting Expense Ratio \[ =\frac{ \begin{bmatrix} \begin{align} & \small\text{Commissions and Brokerage Expenses Incurred} \\ & \small\text{+ Taxes, Licenses, and Fees Incurred} \\ & \small\text{+ Other Acquisitions, Field Supervision, and Collection Expenses Incurred} \\ & \small\text{+ General Expenses Incurred} & \end{align} \end{bmatrix} } {\small\text{Written Premium}} \]