Economic Realities Suggest Pandemic Has Been 'Manageable Event' for WC

Orlando, FL (WorkersCompensation.com) – The workers’ compensation system is “strong and resilient;” the reserve position is the “strongest it’s ever been;” medical cost inflation is running “well below” the overall inflation rate; and the labor market is “very strong.” 

At the same time, workers are “sick, tired and grumpy,” and prognosticators say “times are different,” and have “never been worse.”

The discrepancies between what the data shows and what many perceive to be happening in the economy in general and the workers’ compensation system in particular, are confusing – though not necessarily surprising, according to several economic and worker’s compensation experts. What is clear is that the pandemic has brought about multiple changes and it will take a while for some of the ramifications to fully shake out and be understood.

The experts spoke during the National Council of Compensation Insurers’ (NCCI) annual conference here. This 3-part series delves into the specifics of the economy and worker’s compensation system, and what the future may hold.

The Numbers

Changes are afoot in the economy and workers’ compensation system, following two years of a worldwide pandemic. In fact, NCCI changed the name of its AIS annual conference – from the Annual Issues Symposium, to the Annual Insights Symposium, citing the need for ever more understanding and awareness of the transformations taking place.

A look at the workers’ compensation system shows over positive news:

• The workers’ compensation system saw its 8^th year of underwriting profitability in 2021, with a combined ratio of 87
• Net written premium was up approximately 1 percent
• Workers’ compensation reserve redundancy was $16 billion, at the end of 2021

Considering the numbers came during a worldwide pandemic, they are “unprecedented,” and “quite remarkable,” said Donna Glenn, chief actuary for NCCI. COVID-19 “has been a manageable event for workers’ compensation.”

Glenn’s State of the Line presentation painted a picture of a healthy, stable economy and workers’ compensation insurance line, sentiments echoed by several other speakers. But COVID-19 has and continues to throw some curveballs into the mix.

“Are there things to be upset about in the economy? Absolutely. Inflation is enemy number one for most people,” said Robert Hartwig, clinical associate professor of Finance in the Darla Moore School of Business at the University of South Carolina, and NCCI’s former chief economist. “But to think we are descending into the 1970s, doesn’t ring true.”

Hartwig dispelled comparisons of the current economic situation with that of the 1970s and ‘80s, or ‘the bad old days.’ He noted, for example, that the unemployment rate in 1975 was 8.5 percent, compared to about 3.5 percent today; inflation shot up to 13.5 percent in 1980, compared to 7.4 percent now; and mortgage interest rates – said to be “at a crisis” at 5.3 percent, were 18 percent in 1980.

“Things are very, very different and not as doom and gloom as people make it out to be,” he said.

For workers’ compensation, the residual market was 23 percent of entire premiums written in previous decades, whereas it now comprises less than 1 percent. The average combined ratio was more than 107 from 1973 to 1989, reaching a high of more than 121 in 1986. The projected combined ratio for 2021 is 87.

“There is no comparison,” Hartwig said. “Let the good times roll in workers’ compensation compared to the ‘70s and ‘80s. There was a lot to complain about, particularly as we moved through the 1980s.”

To put the comparisons to rest, Hartwig cited the ‘Misery Index.’ The sum of the unemployment and inflation rates of any given period, the Misery Index was 20.7 in 1980. Today it is around 11.

“The most miserable decade in the time since World War II was actually 1974 to 1983,” Hartwig said. “It’s not even remotely close today. But we’re all affected by what we see and hear and feel. But objectively, it not nearly as miserable today.”

While things now may not compare to the 1970s and ‘80s, COVID-19 has definitely brought about economic and other changes to workers’ compensation.

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