Transcript www.iii.org

Mega Trends in Workers
Compensation
Past, Present and Future
16th Annual AMCOMP Conference
Las Vegas, NV
March 27, 2014
Download at www.iii.org/presentations
Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5520  Cell: 917.453.1885  [email protected]  www.iii.org
Presentation Outline
 The Post-Crisis Economy & Workers Compensation
 The scars of the “Great Recession” are still visible on the WC line
 The New American Labor Force
 The Reindustrialization of America
 The Future of Healthcare in the United States
 WC’s future in inextricably linked to influences in this key sector
 Workers Compensation Operating Result Update
 Workers Compensation: The Next 100 Years
 Q&A
2
The Slow and Uneven Nature of
the Economic Recovery Is
Changing the WC Playing Field
Despite a Still-Sluggish Economy, there
Are Potent Growth Drivers for Workers
Comp and Commercial Insurers in General
3
US Real GDP Growth*
-7%
5.0%
-0.3%
2014/15 are expected
to see a modest
acceleration in
growth
-8.9%
2000
2001
2002
2003
2004
2005
2006
07:1Q
07:2Q
07:3Q
07:4Q
08:1Q
08:2Q
08:3Q
08:4Q
09:1Q
09:2Q
09:3Q
09:4Q
10:1Q
10:2Q
10:3Q
10:4Q
11:1Q
11:2Q
11:3Q
11:4Q
12:1Q
12:2Q
12:3Q
12:4Q
13:1Q
13:2Q
13:3Q
13:4Q
14:1Q
14:2Q
14:3Q
14:4Q
15:1Q
15:2Q
15:3Q
15:4Q
-9%
-5.3%
-5%
Recession began in
Dec. 2007. Economic
toll of credit crunch,
housing slump, labor
market contraction
was severe
-3.7%
-3%
-1.8%
-1%
2.3%
2.2%
2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
0.4%
1.1%
2.5%
4.1%
2.6%
1.9%
2.8%
3.0%
3.1%
3.0%
3.0%
3.0%
2.9%
1%
1.4%
3%
1.3%
5%
The Q4:2008 decline was
the steepest since the
Q1:1982 drop of 6.8%
1.1%
1.8%
2.5%
3.6%
3.1%
2.7%
0.5%
3.6%
3.0%
1.7%
7%
4.1%
Real GDP Growth (%)
Demand for Insurance Should Increase in 2014/15 as GDP Growth
Accelerates Modestly and Gradually Benefits the Economy Broadly
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 3/14; Insurance Information Institute.
4
Real GDP by State Percent Change, 2012:
Highest 25 States
North Dakota was
the economic growth
juggernaut of the US
in 2012—by far
13.4
10
Only 10 states experienced
growth in excess of 3%, which is
what we would see nationally in
a more typical recovery
8
2.0
2.1
2.1
2.1
2.2
2.2
2.2
2.2
2.4
2.4
2.4
2.1
2
2.4
2.7
2.7
3.3
3.3
3.3
3.4
3.5
3.5
3.6
4
3.9
6
4.8
Percent Change (%)
12
2.6
14
0
ND TX OR WA CA MN UT IN TN WV NC SC AZ FL IA MD MS MA MI OH US CO GA MT OK MO
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
5
Connecticut was
the only state to
shrink in 2012
-0.1
0.2
0.2
0.2
0.2
0.4
0.5
0.5
0.7
1.1
1.1
1.2
1.2
1.3
1.3
1.4
1.4
1.4
1.5
1.5
1.5
1.5
1.6
1.7
1.9
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
Growth rates in 8 states
(and DC) were still below
1% in 2012
1.3
Percent Change (%)
Real GDP by State Percent Change, 2012:
Lowest 25 States
IL PA HI LA NE NV WI KS KY RI AR NJ NY AL VT AK VA DC ME NH ID DE NM SD WY CT
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
6
Consumer Sentiment Survey (1966 = 100)
80
75
70
65
55.7
59.5
60.9
64.1
85
74.4
73.6
73.6
72.2
73.6
76
67.8
68.9
68.2
67.7
71.6
74.5
74.2
77.5
67.5
69.8
74.3
71.5
63.7
90
60
50
45
40
Impact of 2011
budget impasse
Optimism among consumers
dropped in Q3 2013 as the
government shutdown created
uncertainty, then rebounded
though the harsh winter took a toll
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
55
69.9
75.0
75.3
76.2
76.4
79.3
73.2
72.3
74.3
82.6
82.7
74.5
73.8
77.6
78.6
76.4
84.5
84.1
85.1
82.1
77.5
73.2
75.1
82.5
81.2
81.6
79.9
January 2010 through March 2014
Consumer confidence has been low for years amid high
unemployment, falling home prices and other factors adversely impact
consumers, but improved substantially over the past 2+ years, though
uncertainty in Washington sometimes takes a toll.
Source: University of Michigan; Insurance Information Institute
8
New Private Housing Starts, 1990-2019F
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
New home starts
plunged 72% from
2005-2009; A net
annual decline of 1.49
million units, lowest
since records began
in 1959
1.31
1.44
1.50
1.51
1.50
2.1
0.55
0.59
0.61
0.78
0.92
1.09
1.19
1.01
1.20
1.29
1.46
1.35
1.48
1.47
1.62
1.64
1.57
1.60
1.71
1.85
1.96
2.07
1.80
1.36
0.91
Job growth, low inventories of
existing homes, low mortgage rates
and demographics should continue
to stimulate new home construction
for several more years
(Millions of Units)
0.3
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F15F16F17F18F19F
Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the
“Great Recession” Associated with Home Construction: Construction Risk
Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (3/14 and 3/13); Insurance Information Institute.
9
Commercial & Industrial Loans Outstanding
at FDIC-Insured Banks, Quarterly, 2006-2013*
$1.6
$1.5
$1.4
$1.3
$1.2
$1.1
Recession
In nominal dollar
terms, this is an
all-time high.
$1.13
$1.16
$1.18
$1.22
$1.25
$1.30
$1.39
$1.44
$1.48
$1.49
$1.50
$1.49
$1.43
$1.37
$1.27
$1.21
$1.18
$1.17
$1.17
$1.18
$1.20
$1.24
$1.28
$1.35
$1.37
$1.42
$1.46
$1.51
$1.53
$1.56
$1.57
$Trillions
06:Q1
06:Q2
06:Q3
06:Q4
07:Q1
07:Q2
07:Q3
07:Q4
08:Q1
08;Q2
08:Q3
08:Q4
09:Q1
09:Q2
09:Q3
09:Q4
10:Q1
10:Q2
10:Q3
10:Q4
11:Q1
11:Q2
11:Q3
11:Q4
12:Q1
12:Q2
12:Q3
12:Q4
13:Q1
13:Q2
13:Q3
$1.0
Outstanding loan volume has been growing for over two years
and (as of year-end 2012) surpassed previous peak levels.
*Latest data as of 2/2/2014.
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
10
55
50
45
40
50.7
52.7
54.1
54.6
54.8
53.5
53.7
52.8
53.9
54.6
56
57.1
59.4
59.7
56.3
54.4
53.3
53.4
53.8
52.6
52.6
52.6
52.6
53.0
56.8
56.1
55.0
53.7
54.1
52.7
52.9
54.3
55.2
54.8
54.8
55.7
55.2
56.0
54.4
53.1
53.7
52.2
56.0
58.6
54.4
55.4
53.9
53.0
54.0
51.6
60
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
ISM Non-Manufacturing Index
(Values > 50 Indicate Expansion)
January 2010 through February 2014
65
Optimism among nonmanufacturers was hurt by
the uncertainty in
Washington, but remains
resilient
Non-manufacturing industries have been expanding and adding
jobs. This trend is likely to continue through 2014.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/nonmfgrob.cfm; Insurance Information Institute.
11
Business Bankruptcy Filings,
1980-2013
1980-82
1980-87
1990-91
2000-01
2006-09
90,000
80,000
40,000
30,000
20,000
10,000
0
58.6%
88.7%
10.3%
13.0%
208.9%
2013 bankruptcies totaled 33,212,
down 17.1% from 2012—the fourth
consecutive year of decline. Business
bankruptcies more than tripled during
the financial crisis.
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
50,000
43,694
48,125
70,000
60,000
69,300
62,436
64,004
71,277
81,235
82,446
63,853
63,235
64,853
71,549
70,643
62,304
52,374
51,959
53,549
54,027
44,367
37,884
35,472
40,099
38,540
35,037
34,317
39,201
19,695
28,322
43,546
60,837
56,282
47,806
40,075
33,212
% Change Surrounding
Recessions
Significant Exposure Implications for All Commercial Lines as
Business Bankruptcies Begin to Decline
Sources: American Bankruptcy Institute (1980-2012) at
http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; 2013
data from United States Courts at http://news.uscourts.gov; Insurance Information Institute.
12
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2013:Q4
Billions
$7,500
Latest (2013:Q4)
was $7.23 trillion, a
new peak--$980B
above 2009 trough
$7,250
$7,000
$6,750
Prior Peak was
2008:Q1 at $6.60 trillion
$6,500
Payrolls are
15.7% above
their 2009 trough
and up 2.0% over
the past year
$6,250
$6,000
$5,750
Recent trough (2009:Q3)
was $6.25 trillion, down
5.3% from prior peak
05:Q1
05:Q2
05:Q3
05:Q4
06:Q1
06:Q2
06:Q3
06:Q4
07:Q1
07:Q2
07:Q3
07:Q4
08:Q1
08:Q2
08:Q3
08:Q4
09:Q1
09:Q2
09:Q3
09:Q4
10:Q1
10:Q2
10:Q3
10:Q4
11:Q1
11:Q2
11:Q3
11:Q4
12:Q1
12:Q2
12:Q3
12:Q4
13:Q1
13:Q2
13:Q3
13:Q4
$5,500
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.
Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance
Information Institute.
13
12 Industries for the Next 10 Years:
Insurance Solutions Needed
Health Care
Health Sciences
Energy (Traditional)
Alternative Energy
Petrochemical
Agriculture
Natural Resources
Technology (incl. Biotechnology)
Many
industries are
poised for
growth,
though
insurers’
ability to
capitalize on
these
industries
varies widely
Light Manufacturing
Insourced Manufacturing
Export-Oriented Industries
Shipping (Rail, Marine, Trucking, Pipelines)
14
CONSTRUCTION INDUSTRY
OVERVIEW & OUTLOOK
The Construction Sector Is
Critical to the Economy and
the WC Insurers
15
Value of New Private Construction:
Residential & Nonresidential, 2003-2013*
Billions of Dollars
New Construction peaks
at $911.8. in 2006
Trough in 2010
at $500.6B,
after plunging
55.1% ($411.2B)
$1,000
$900
$800
$15.0
2013: Value of new
pvt. construction
hits $667.5B, up
33% from the 2010
trough but still
27% below 2006
peak
$613.7
$700
$600
$500
$311.5
$298.1
$400
$300
$261.8
Non Residential
Residential
$200
$100
$356.0
$238.8
$0
03
04
05
06
07
08
09
10
11
12
13*
Private Construction Activity Is Moving in a Positive Direction though
Remains Well Below Pre-Crisis Peak; Residential Dominates
*2013 figure is a seasonally adjusted annual rate as of December.
Sources: US Department of Commerce; Insurance Information Institute.
16
Value of Construction Put in Place,
January 2014 vs. January 2013*
Growth (%)
Private: +12.3%
20%
12.3%
15%
10%
Public: +2.5%
14.6%
9.3%
9.7%
3.0%
2.5%
5%
0%
-5%
-10%
-15%
-20%
Private sector construction
activity is now up in the
residential and
nonresidential segments
Public sector
construction activity
remains low but is no
longer contracting
-25%
-22.2%
Total
Construction
Total Private Residential-Construction
Private
NonResidential-Private
Total Public
Construction
ResidentialPublic
NonResidential-Public
Overall Construction Activity is Up, But Growth Is Almost Entirely in the
Private Sector as State/Local Government Budget Woes Continue
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
18
Value of Private Construction Put in Place,
by Segment, Jan. 2014 vs. Jan. 2013*
Growth (%)
Led by the Residential Construction, Lodging,
Communication and Office segments, Private
sector construction activity is rising after
plunging during the “Great Recession.”
60%
47.8%
50%
41.0%
40%
30%
20% 12.3%
10%
14.6%
17.0%14.9%
9.7%
13.8%
7.8%
7.9%
1.7%
0.9%
0%
-10%
-3.9%
Manufacturing
Power
Communication
Transportation
Amusement &
Rec.
Educational
Health Care
Commercial
Office
Lodging
Total
Nonresidential
Residential
Total Private
Construction
Religious
-12.2%
-20%
Private Construction Activity is Up in Most Segments, Including the Key
Residential Construction Sector; Bodes Well for Early 2014
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
19
Private Construction by Segment/Project
Type, Jan. 2014 vs. Jan. 2013*
Shopping malls/centers and
warehouse construction are
among the strongest
nonresidential segments
Growth (%)
42.6%41.0%
33.4%
28.0%
21.0%
17.0%
20.6%
5.0%
0.9%
0.6%
-1.6%
-3.9%-5.9%
-3.6%
Special Care
Medical
Building
Hospitals
Warehouse:
Mini-Storage
Warehouse:
Commercial
Other Stores
Building
Supply
Shopping Mall
Retail: General
Merchandise
Retail:
Shopping
Center
Food/Beverage
Automotive
Office:
Financial
Office: General
Residential:
Multi-Family
Drug Store
-16.6%
-30.3%
-24.2%
Residential:
Single Family
Total Private
Construction
50%
40%
30%
20% 12.3%
10%
0%
-10%
-20%
-30%
-40%
Private Construction Activity is Up in Many Segments, Including the Key
Residential Construction Sector, But Down in a Few
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
20
Florida Total Private Housing Starts,
2000 – 2017F
(Thousands of Units)
CRASH, CRATER, RECOVERY
Homebuilding in FL continues
to recover, but employment
and WC exposures will take
more than a decade to recover
The economic
outlook for most of
the US is positive for
the first time in many
years
Source: University of Central Florida Institute for Economic Competitiveness: http://iec.ucf.edu/post/2014/01/07/Florida-Metro-Forecast-December-2013.aspx
21
Value of New Federal, State and Local
Government Construction: 2003-2013*
($ Billions)
$350
Austerity Reigns
Construction
across all levels
of government
peaked at $314.9B
in 2009
Govt. construction is still
shrinking, down $40.5B or
12.9% since 2009 peak
$308.7
$314.9
$289.1
$300
$304.0
$286.4
$279.0
$274.4
2011
2012
2013*
$255.4
$250
$216.1
$220.2
2003
2004
$234.2
$200
$150
$100
$50
$0
2005
2006
2007
2008
2009
2010
Government Construction Spending Peaked in 2009, Helped by Stimulus
Spending, but Continues to Contract As State/Local Governments
Grapple with Deficits and Federal Sequestration Takes Hold
*2013 figure is a seasonally adjusted annual rate as of December.
Sources: US Department of Commerce; Insurance Information Institute.
22
Value of Public Construction Put in Place,
by Segment, Jan. 2014 vs. Jan. 2013*
7.8% 8.7%
3.6%
3.0%
-6.2%
-9.9%
-3.0%
-0.6%
-6.2%
-10.8%
-15.1%
-22.2%
Conservation &
Develop.
Water Supply
Sewage &
Waste Disposal
Highway &
Street
Power
Transportation
Amusement &
Rec.
Public Safety
Educational
Health Care
Commercial
Office
-27.8%
Total
Nonresidential
Total Public
Construction
20%
15%
10%
5% 2.5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
Highway, Transport,
and Power projects
lead public sector
construction
15.3%
Public sector construction activity is
down substantially in most segments, a
situation that will likely persist, dragging
on public entity risk exposures
Residential
Growth (%)
Public Construction Activity is Down in Many Segments as State and
Local Budgets Remain Under Stress; Improvement Possible in 2014.
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
23
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/2
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-12
Oct-13
Nov-13
Dec-13
Jan-14
Jan-14
(Thousands)
6,000
5,900
5,800
5,700
5,600
5,500
5,581
5,522
5,542
5,554
5,527
5,512
5,497
5,519
5,499
5,501
5,497
5,468
5,435
5,478
5,485
5,497
5,524
5,530
5,547
5,546
5,583
5,576
5,577
5,612
5,629
5,644
5,640
5,636
5,615
5,622
5,627
5,630
5,633
5,649
5,673
5,711
5,735
5,783
5,799
5,792
5,791
5,801
5,804
5,805
5,822
5,830
5,849
5,876
5,926
5,941
Construction Employment,
Jan. 2010—February 2014*
Construction employment
is +506,000 above
Jan. 2011 (+9.3%) trough
5,400
Construction and manufacturing employment constitute 1/3 of all payroll exposure.
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
25
Construction Employment,
Jan. 2003–February 2014
(Thousands)
Construction
employment as of
Feb. 2014 totaled
5.941 million, an
increase of 506,000
jobs or 9.3% from the
Jan. 2011 trough
Construction
employment
peaked at
7.726 million
in April 2006
8,000
7,500
Construction
employment
troughed at 5.435
million in Jan.
2011, after a loss
of 2.291 million
jobs, a 29.7%
plunge from the
April 2006 peak
7,000
6,500
6,000
The “Great Recession” and
housing bust destroyed 2.3
million constructions jobs
5,500
5,000
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
The Construction Sector Could Be a Growth Leader in 2014 as the Housing Market,
Private Investment and Govt. Spending Recover. WC Insurers Will Benefit.
Note: Recession indicated by gray shaded column.
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
26
The New American Labor Force
The Recovery’s Winners and Losers
Are Reshaping the Sources of WC’s
Payroll Exposure Base
27
Unemployment and Underemployment
Rates: Still Too High, But Falling
January 2000 through February 2014,
Seasonally Adjusted (%)
18
"Headline" Unemployment Rate U-3
16
Unemployment + Underemployment Rate
U-6
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 12.6%
in Feb. 2014.
8% to 10% is
“normal.”
14
12
10
8
6
4
As the unemployment
rate approaches 6%,
the Fed will begin
signaling on shortterm rates
2
“Headline”
unemployment
was 6.7% in
February 2014.
4% to 6% is
“normal.”
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Stubbornly high unemployment and underemployment constrain overall
economic growth, but the job market is now clearly improving.
Source: US Bureau of Labor Statistics; Insurance Information Institute.
28
US Unemployment Rate Forecast
2007:Q1 to 2015:Q4F*
8%
7%
6%
5%
Unemployment
peaked at 10%
in late 2009.
9.3%
9.6%
10.0%
9.7%
9.6%
9.6%
9.6%
8.9%
9.1%
9.1%
8.7%
8.3%
8.2%
8.0%
7.8%
7.7%
7.6%
7.3%
7.0%
6.6%
6.5%
6.3%
6.2%
6.1%
6.0%
5.9%
5.8%
9%
Jobless figures
have been revised
slightly downwards
for 2014/15
8.1%
10%
4.5%
4.5%
4.6%
4.8%
4.9%
5.4%
6.1%
6.9%
11%
Rising
unemployment
eroded
payrolls
and WC’s
exposure base.
Unemployment forecasts
have been revised slightly
downwards. Optimistic
scenarios put the
unemployment as low as
6.0% by Q4 of this year.
07:Q1
07:Q2
07:Q3
07:Q4
08:Q1
08:Q2
08:Q3
08:Q4
09:Q1
09:Q2
09:Q3
09:Q4
10:Q1
10:Q2
10:Q3
10:Q4
11:Q1
11:Q2
11:Q3
11:Q4
12:Q1
12:Q2
12:Q3
12:Q4
13:Q1
13:Q2
13:Q3
13:Q4
14:Q1
14:Q2
14:Q3
14:Q4
15:Q1
15:Q2
15:Q3
15:Q4
4%
*
= actual;
= forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (3/14 edition); Insurance Information Institute.
29
(600)
(800)
(1,000)
Monthly losses in
Dec. 08–Mar. 09 were
the largest in the
post-WW II period
-776
-693
-821
-698
-810
-801
-426
-422
-486
(400)
-232
-272
-232
-141
-271
-294
-38
-15
-71
-115
-106
-221
-215
-206
-261
-258
(200)
231
170
126
32
64
81
55
57
400
113
192
94
110
120
117
107
199
149
94
72
223
231
320
166
186
219
125
268
177
191
222
364
228
246
102
131
75
172
136
159
255
211
215
219
263
164
188
222
201
170
180
153
247
272
86
145
162
20
3
3
0
52
52
200
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Monthly Change in Private Employment
January 2007 through February 2014 (Thousands, Seasonally Adjusted)
600
Jobs Created
2013: 2.368 Mill
2012: 2.294 Mill
2011: 2.400 Mill
2010: 1.277 Mill
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
162,000 private
sector jobs were
created in February
Private Employers Added 8.34 million Jobs Since Jan. 2010 After
Having Shed 5.01 Million Jobs in 2009 and 3.76 Million in 2008 (State
and Local Governments Have Shed Hundreds of Thousands of Jobs)
30
Cumulative Change in Private Sector
Employment: Jan. 2010—Feb. 2014
Millions
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
6.805
7.027
7.228
7.398
7.578
7.731
7.978
8.250
8.336
8.481
8.643
8.0
Job gains and pay
increases have added
nearly $1 trillion to payrolls
since Jan. 2010
0.020
-0.018
0.095
0.287
0.381
0.491
0.611
0.728
0.835
1.034
1.183
1.277
1.349
1.572
1.803
2.123
2.289
2.475
2.694
2.819
3.087
3.264
3.455
3.677
4.041
4.269
4.515
4.617
4.748
4.823
4.995
5.131
5.290
5.545
5.756
5.971
6.190
6.453
9.0
Cumulative job gains
through Feb. 2014
totaled 8.64 million
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
10.0
6.617
January 2010 through February 2014* (Millions)
Private Employers Added 8.64 million Jobs Since Jan. 2010 After
Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State
and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
32
Cumulative Change in Government
Employment: Jan. 2010—Dec. 2013
200
0
-200
-400
-600
-800
287
400
Government at all levels has
shed more than 600,000 jobs
since Jan. 2010 even as private
employers created 8.14 million
jobs, though losses may now
be stabilizing.
Jan-10
4
Feb-10
-10
Mar-10
33
Apr-10
92
May-10
Jun-10
Jul-10
98
Aug-10
-68
Sep-10
-224
Oct-10
-184
Nov-10
-194
Dec-10
-213
Jan-11
-224
-271
Feb-11
-289
Mar-11
-288
Apr-11
-356
May-11
-324
Jun-11
-452
Jul-11
-449
Aug-11
-480
Sep-11
-488
Oct-11
-511
Nov-11
-530
Dec-11
Jan-12
-542
Feb-12
-536
Mar-12
-539
Apr-12
-547
May-12
-574
Jun-12
-565
Jul-12
-589
Aug-12
-555
Sep-12
-535
Oct-12
-592
Nov-12
-601
Dec-12
-606
Jan-13 -622
-609
Feb-13
-621
Mar-13
-610
Apr-13
May-13 -621
Jun-13 -643
Jul-13 -654
Aug-13 -623
Sep-13 -616
Oct-13 -633
Nov-13 -618
Dec-13 -631
600
511
January 2010 through Dec. 2013* (Millions)
Temporary
Census hiring
distorted 2010
figures
Cumulative job
losses through Dec.
2013 totaled 631,000
Governments at All Levels are Under Severe Fiscal Strain As Tax
Receipts Plunged and Pension Obligations Soared During the
Financial Crisis: Sequestration Will Add to this Toll
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
33
Net Change in Government
Employment: Jan. 2010—Dec. 2013*
State government employment fell by
1.9% since the end of 2009 but is
recovering while Federal employment
is down by 3.8% and deteriorating
(Thousands)
0
-100
-100
-107
-200
-300
-400
-424
-500
-600
-700
Local government employment
shrank by 424,000 from Jan.
2010 through Dec. 2013,
accounting for 67% of all
government job losses,
negatively impacting WC
exposures for those cities and
counties that insure privately
-631
Total
Local
State
*Cumulative change from prior month; Base employment date is Dec. 2009.
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
Federal
34
6.2
6.2
6.4
6.4
6.4
6.4
6.5
6.5
6.5
6.7
6.7
6.8
6.9
6.9
7.0
7.1
7.1
7.1
7.3
7.4
7.4
7.7
8.7
8.5
8.0
8
In February, 29 states had over-the-month
unemployment rate decreases, 10 states
had increases, and 11 states and the
District of Columbia had no change.
7.8
Unemployment Rate (%)
10
9.0
Unemployment Rates by State, February 2014:
Highest 25 States*
6
4
2
0
RI
IL NV CA KY MI DC MS AZ AR GA NJ CT OR TN NY US NM AK MA OH AL MO NC WA FL PA
*Provisional figures for February 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
35
Unemployment Rates by State, February 2014:
Lowest 25 States*
3.6
3.6
3.7
3.9
4.2
4.4
4.5
4.6
4.7
2.6
3
4.9
5.7
5.7
5.7
6.0
6.1
6.1
6.1
4
4.9
5.1
5.0
5
6.0
6
5.3
Unemployment Rate (%)
6.1
7
4.8
In February, 29 states had over-themonth unemployment rate decreases,
10 states had increases, and 11 states
and the District of Columbia had no
change.
2
1
0
CO IN ME WI DE WV MD SC TX ID MT OK KS VA MN NH HI LA IA WY UT VT NE SD ND
*Provisional figures for February 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
36
Payroll vs. Workers Comp Net Written
Premiums, 1990-2013E
Payroll Base*
$Billions
$7,000
WC NWP
$Billions
Wage & Salary Disbursements
3/01-11/01
WC NPW
7/90-3/91
$50
12/07-6/09
$45
WC premium
volume dropped
two years before
the recession began
$6,000
$5,000
$40
$35
WC net premiums
written were down
$14B or 29.3% to
$33.8B in 2010 after
peaking at $47.8B
in 2005
$4,000
$3,000
+8.5% in
2013E
E
13
12
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
$25
90
$2,000
$30
Continued Payroll Growth and Rate Increases Suggest WC NWP Will Grow
Again in 2014; +8.6% Growth Estimated for 2013
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2013 actuals.
Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
39
Labor Force Participation Rate by
Gender, 1948—2013
(Percent)
86.6% or working age
men participated in the
labor force in 1948
compared to 32.7% or
women
100%
90%
By 2013, the labor force
participation rate for men had
declined to 69.7% while the
participation rate for women
had risen to 57.2%
80%
70%
60%
50%
By 2013, 57.2% of working age
women participated in the
labor force, up from 32.7% in
1948 but down from its all time
high of 60.0% in 1999
40%
30%
20%
10%
Men
Women
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
0%
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
40
Labor Force Participation by Sex and Education
through the Crisis: 2006, 2010 and 2013
Unemployment
Rate (%)
2006
2010
2013
16%
Workers lacking a college
Men were hit harder and
degree suffer from much
continue to do worse than
higher rates of
women in the job market.
unemployment
Women are likely to do
better than men for the
indefinite future.
13.9%
14%
11.5%
12%
10%
9.6%
10.5%
7.6%
7.4%
8%
9.7%
8.6%
7.1%
7.9%
5.9%
6% 4.6%
4%
4.6%
4.6%
4.1%
6.0%
5.0%
2.2%
2%
0%
All
Men
Women
Less than HS HS Diploma,
Diploma
No College
Bachelor's
Degree or
Higher
The composition and character of the U.S. labor force is changing rapidly.
Winners and losers have clearly emerged. What does this mean for WC?
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
41
Unemployment Rates by Age and Race:
2006, 2010 and 2013
Unemployment
among younger
workers remains
a chronic
problem
Unemployment Rate (%)
2006
2010
Unemployment among
some minority groups
remains far above prerecession levels
2013
30%
24.9%
22.9%
25%
20%
18.0%
15.3%
13.5%
15%
10%
5%
10.0%
9.6%
7.4%
4.6%
16.0%
13.1%
12.5%
9.0%
9.1%
5.2%
8.7%
6.5%
4.0%
0%
All
16-19
16-24
Source: U.S. Bureau of Labor Statistics; Insurance Information Institute.
Black or
African
American
Hispanic or
Latino
White
42
24%
31.1%
32.2%
32.2%
32.5%
31.8%
31.8%
31.7%
32.9%
26%
22.1%
22.5%
22.3%
23.0%
22.8%
23.0%
22.9%
23.5%
24.4%
24.4%
24.3%
24.9%
24.4%
24.4%
24.8%
25.2%
25.2%
26.3%
26.5%
26.2%
28%
The brown bars
indicate recessions.
27.9%
27.2%
27.0%
27.4%
27.9%
27.3%
27.8%
27.6%
26.8%
27.6%
30%
27.9%
28.5%
28.7%
29.3%
29.5%
32%
2011.3
34%
30.8%
29.3%
30.1%
29.1%
30.3%
30.1%
30.9%
31.0%
30.7%
31.0%
31.4%
30.9%
31.2%
31.6%
31.3%
31.5%
31.4%
1 in 3 in this age group
are working. Virtually
none of them are “baby
boomers”
32.8%
32.3%
Labor Force
participation rate
2011.1
Labor Force Participation Rate,
Ages 65-69, Quarterly, 1998:Q1-2013:Q2
2013.1
2012.3
2012.1
2010.3
2010.1
2009.3
2009.1
2008.3
2008.1
2007.3
2007.1
2006.3
2006.1
2005.3
2005.1
2004.3
2004.1
2003.3
2003.1
2002.3
2002.1
2001.3
2001.1
2000.3
2000.1
1999.3
1999.1
1998.3
20%
1998.1
22%
The labor force participation rate for workers 65-69 might grow even faster in the future
as seniors find they can’t fully retire on their meager retirement savings.
Not seasonally adjusted. Sources: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.
9%
Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.
The labor force participation rate for workers 70-74 grew by about 50% since 1998.
Growth stalled during and after the Great Recession but has since resumed.
2013.1
2012.3
2012.1
2011.3
2011.1
2010.3
2010.1
2009.3
2009.1
2008.3
2008.1
2007.3
2007.1
2006.3
2006.1
2005.3
2005.1
2004.3
2004.1
2003.3
2003.1
2002.3
Labor Force
participation rate
2002.1
2001.3
2001.1
2000.3
2000.1
1999.3
1999.1
15%
1998.3
18%
12.5%
12.2%
12.4%
12.9%
12.4%
13.6%
13.1%
13.1%
13.3%
13.5%
13.6%
13.8%
14.4%
13.7%
14.2%
14.2%
13.8%
14.2%
14.0%
14.0%
14.4%
14.4%
14.6%
14.9%
14.9%
15.4%
15.6%
15.3%
16.4%
17.0%
15.8%
16.2%
16.7%
16.9%
17.2%
17.0%
16.7%
16.8%
18.0%
17.5%
17.3%
16.9%
18.6%
18.2%
17.7%
17.9%
18.9%
19.2%
18.0%
18.1%
17.4%
18.4%
18.0%
18.4%
19.3%
19.5%
19.2%
19.1%
19.9%
19.6%
18.8%
19.3%
21%
1998.1
Labor Force Participation Rate,
Ages 70-74, Quarterly, 1998:Q1-2013:Q2
Nearly 1 in 5 in this age
group is working.
A dozen years ago it
was 1 in 8.
12%
The Reindustrialization
of America
American Industrial Might Is
Making a Comeback
A Golden Opportunity for
Workers Comp Insurers?
50
Dollar Value* of Manufacturers’
Shipments Monthly, Jan. 1992—Dec. 2013
$ Millions
$500,000
The value of Manufacturing
Shipments in Dec. 2013 was
$492.7B—a near record high.
$400,000
$300,000
Ja
n92
Ja
n93
Ja
n94
Ja
n95
Ja
n96
Ja
n97
Ja
n98
Ja
n99
Ja
n00
Ja
n
01
Ja
n
0
Ja 2
n
03
Ja
n
04
Ja
n
05
Ja
n
06
Ja
n
07
Ja
n
08
Ja
n
09
Ja
n
10
Ja
n
1
12 1
-J
an
13
-J
an
$200,000
Monthly shipments in Dec. 2013 exceeded the pre-crisis (July 2008) peak.
Manufacturing is energy-intensive and growth leads to gains in many commercial
exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.
*seasonally adjusted; Dec. 2013 is preliminary; data published February 4, 2014.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 51
55
45
40
51.4
52.5
52.5
51.8
52.2
53.1
54.1
51.9
53.3
54.1
52.5
50.2
50.5
50.7
51.6
51.7
49.9
50.2
53.1
54.2
51.3
50.7
49.0
50.9
55.4
55.7
56.2
56.4
57.3
57.0
51.9
53.2
50
58.3
57.1
60.4
59.6
57.8
55.3
55.1
55.2
55.3
56.9
58.2
58.5
60.8
61.4
59.7
59.7
54.2
55.8
60
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
ISM Manufacturing Index
(Values > 50 Indicate Expansion)
January 2010 through February 2014
65
Manufacturing continued to
expand in early 2014
The manufacturing sector expanded for 48 of the 50 months from Jan.
2010 through February 2014. Weakness in early 2014 stems largely
from harsh winter weather and weakness in China.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute.
52
Manufacturing Growth for Selected
Sectors, 2013 vs. 2012*
Growth (%)
Non-Durables: +0.2%
Durables: +3.4%
14.0%
8.1%
Manufacturing of durable
goods was especially
strong in 2012 but
weakened in 2013
3.0%
0.2%
0.0%
Textile
Products
Food
Products
Non-Durable
Mfg.
Transportation
Equip.
Computers &
Electronics
Electrical
Equip.
Machinery
Fabricated
Metals
Primary
Metals
Plastics &
Rubber
-0.5%
-1.8%
-3.4%
Wood
Products
6.9%
3.1%
2.7%
Chemical
0.4% 1.3%
Petroleum &
Coal
3.1%
Durable Mfg.
All
Manufacturing
16%
14%
12%
10%
8%
6%
4% 1.7%
2%
0%
-2%
-4%
-6%
Manufacturing Is Expanding—Albeit Slowly—Across a Number of Sectors that
Will Contribute to Growth in Insurable Exposures Including: WC, Commercial
Property, Commercial Auto and Many Liability Coverages
*Seasonally adjusted; Date are YTD comparing data through November 2013 to the same period in 2012.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 53
Durable Manufacturing: New Order
Growth and Shipments, 2013
Most manufacturing sectors indicate
order growth outstripping
shipments, a favorable indicator for
investment and expansion
Growth (%)
Shipments
10.1%10.2%
8.3%
7.8%
6.4%
3.6%
5.7%
3.9%
3.6%
2.9%
2.3%
1.3% 1.2%
Non-Defense
Capital Goods
Motor Vehicles
& Parts
Communications
Equipment
Computers &
Elect. Eq.
Machinery
Fabricated
Metals
Primary Metals
-3.2%-2.8%
All Durable Mfg:
Non-Defense
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
New Orders
Manufacturing Is Expanding: New orders exceed shipments which suggests
the industry is in an expansionary phase
*Seasonally adjusted; Date are advance report YTD data comparing data through December 2013 to the same period in 2012.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 54
Recovery in Capacity Utilization is a
Positive Sign for Commercial Exposures
March 2001 through December 2013
“Full Capacity”
Percent of Industrial Capacity
82%
80%
Hurricane
Katrina
The US operated at 79.2% of
industrial capacity in Dec.
2013, well above the June
2009 low of 66.9% but is still
below pre-recession levels.
78%
76%
70%
68%
66%
March 2001November 2001
recession
December 2007June 2009 Recession
Source: Federal Reserve Board statistical releases at http://www.federalreserve.gov/releases/g17/Current/default.htm.
Dec
72%
The closer the economy is
to operating at “full
capacity,” the greater the
inflationary pressure
Mar 01
Jun 01
Sep
Dec
Mar 02
Jun 02
Sep
Dec
Mar 03
Jun 03
Sep
Dec
Mar 04
Jun 04
Sep
Dec
Mar 05
Jun 05
Sep
Dec
Mar 06
Jun 06
Sep
Dec
Mar 07
Jun 07
Sep
Dec
Mar 08
Jun 08
Sep
Dec
Mar 09
Jun 09
Sep
Dec
Mar 10
Jun 10
Sep
Dec
Mar 11
Jun 11
Sep
Dec
Mar 12
Jun 12
Sep
Dec
Mar 13
Jun 13
Sep
74%
55
55
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/2
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
12,250
12,000
11,750
11,500
11,460
11,460
11,466
11,497
11,531
11,539
11,558
11,548
11,554
11,555
11,577
11,590
11,624
11,662
11,682
11,707
11,715
11,724
11,747
11,760
11,762
11,770
11,769
11,797
11,841
11,870
11,910
11,920
11,926
11,935
11,957
11,943
11,925
11,931
11,938
11,951
11,965
11,988
11,984
11,977
11,972
11,965
11,948
11,963
11,993
12,011
12,046
12,053
12,059
12,065
Manufacturing Employment,
Jan. 2010—February 2014*
(Thousands)
Since Jan 2010,
manufacturing employment
is up (+605,000 or +5.3%)
and still growing.
11,250
Manufacturing employment is a surprising source of strength in the
economy. Employment in the sector is at a multi-year high.
*Seasonally adjusted; Jan. and Feb. 2014 are preliminary
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
56
Business Investment: Expected to Accelerate,
Fueling Commercial Exposure Growth
Accelerating business investment
will be a potent driver of
commercial property and liability
insurance exposures and should
drive employment and WC payroll
exposures as well (with a lag)
9%
8%
7.8%
6.3%
7%
6%
4.9%
5%
4%
3%
2.5%
2%
1%
0%
2013
2014F
2015F
Source: IHS Global Insights as of Jan. 13, 2014; Insurance Information Institute.
2016F
57
U.S. Natural Has Imports and Exports,
1990 - 2040
Trillions of Cubic Feet
The US is now
the largest gas
producer in the
world, though
Russia is the
largest exporter.
The US needs to
invest in its
pipeline and
LNG
infrastructure
and expedite
regulatory
approval to
realize its full
export potential
Sources: US Energy Information Administration, Annual Energy Outlook 2014 Early Release Overview; ;Insurance Information Institute.
58
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/2
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
220
210
200
190
180
170
160
156.4
156.4
156.7
157.6
158.7
157.8
158.0
159.5
160.0
161.5
161.2
161.2
163.1
164.4
166.6
169.3
170.1
171.0
172.5
173.6
176.3
178.2
178.5
180.9
181.9
183.1
184.8
185.2
185.7
186.8
187.6
188.0
188.0
188.2
190.0
191.7
191.9
193.4
192.4
192.6
193.1
193.3
195.0
196.5
199.7
200.6
203.0
204.1
206.1
207.8
Oil & Gas Extraction Employment,
Jan. 2010—Feb. 2014*
(Thousands)
Oil and gas extraction employment
is up 32.9% since Jan. 2010 as the
energy sector booms. Domestic
energy production is essential to
any robust economic recovery in
the US.
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
Highest
since Aug.
1986
150
59
Growth in Health Professions,
1991-2013
(Percent Annual Change)
Average Annual Growth Average
Healthcare: 2.5%
Total Nonfarm: 1.0%
7.0
5.0
3.0
1.0
-1.0
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1993
1992
-5.0
1991
-3.0
1994
The U.S. economy lost more than
8 million jobs during the Great
Health care
Recession, but health sector
Total nonfarm
employment expanded
Healthcare employment has continued to grow in good times
and bad - including the Great Recession.
Sources: Bureau of Labor Statistics, Insurance Information Institute.
60
Occupations Ranked by Projected
Percentage Growth, 2012-2022F (Millions)
28.1
Healthcare Support
21.5
21.4
20.9
Healthcare Practitioners
Construction
Personal Care and Service
18
17.2
Computer and Math
Social Service
12.5
12.5
11.1
10.8
10.7
10.1
9.6
9.4
8.6
7.9
7.3
7.3
7.2
7
6.8
Business & Financial
Groundskeeping/Janitorial
Education
All Occupations
Legal
Life, Phys and Social Science
Repair
Food Preparation
Transportation
Fire, Police, Etc.
Architects and Engineers
Sales
Management
Arts and Media
Administrative Support
Production
Farming
Healthcare professions are
expected to grow at 2 to
nearly 3 times employment
growth overall
0.8
-3.4
Source: Bureau of Labor Statistics, Insurance Information Institute.
61
The Future of Healthcare
in America
Workers Comp Is Increasingly
Along for the Ride in the
American Health Care Saga
62
U.S. Health Care Expenditures,
1965–2022F
$ Billions
$5,000
$4,000
$3,000
$2,000
$1,000
$0
65 $42.0
66 $46.3
67 $51.8
68 $58.8
69 $66.2
70 $74.9
71 $83.2
72 $93.1
73 $103.4
74 $117.2
75 $133.6
76 $153.0
77 $174.0
$195.5
78
$221.7
79
$255.8
80
$296.7
81
$334.7
82
$369.0
83
$406.5
84
$444.6
85
$476.9
86
$519.1
87
$581.7
88
$647.5
89
$724.3
90
$791.5
91
$857.9
92
$921.5
93
$972.7
94
$1,027.4
95
$1,081.8
96
$1,142.6
97
$1,208.9
98
$1,286.5
99
$1,377.2
00
$1,493.3
01
$1,638.0
02
$1,775.4
03
$1,901.6
04
$2,030.5
05
$2,163.3
06
$2,298.3
07
$2,406.6
08
$2,501.2
09
$2,600.0
10
$2,700.7
11
$2,806.6
12
$2,914.7
13
$3,093.2
14
$3,273.4
15
$3,458.3
16
$3,660.4
17
$3,889.1
18
$4,142.4
19
$4,416.2
20
$4,702.0
21
$5,008.8
22
$6,000
From 1965 through 2013, US
health care expenditures had
increased by 69 fold.
Population growth over the
same period increased by a
factor of just 1.6. By 2022,
health spending will have
increased 119 fold.
U.S. health care expenditures have been on a relentless climb for
most of the past half century, far outstripping population growth,
inflation of GDP growth
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
63
National Health Care Expenditures as a
Share of GDP, 1965 – 2022F*
% of GDP
20%
18%
16%
Health care expenditures as a share
of GDP rose from 5.8% in 1965 to
18.0% in 2013 and are expected to
reach 19.9% of GDP by 2022
2022
19.9%
2010:
17.9%
14%
12%
10%
1990:
12.5%
8%
6%
2%
0%
1965
5.8%
Since 2009, heath
expenditures as a %
of GDP have
flattened out at
about 18%--the
question is why and
will it last?
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
4%
1980:
9.2%
2000:
13.8%
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
Rate of Health Care Expenditure Increase
Compared to Population, CPI and GDP
8000%
Accelerating business investment
will be a potent driver of
commercial property and liability
insurance exposures and should
drive employment and WC payroll
exposures as well (with a lag)
1965: $42.0 Bill
2013: $2,914.7 Bill
6839.8%
7000%
1965: $719.1 Bill
6000%
2013: $16,797.5 Bill
5000%
4000%
3000%
1965: 194.3 Mill
2235.9%
2013: 317.0 Mill
2000%
1000%
650.7%
63.1%
0%
Population
Source: Insurance Information Institute research.
CPI
GDP
Health Care
Expenditures
65
Medical Cost Inflation vs. Overall CPI,
1995 - 2013
Though moderating, medical
inflation will continue to exceed
inflation in the overall economy
5%
4%
3%
2%
1%
Average Annual Growth Average
Healthcare: 3.8%
Overall CPI: 2.4%
0%
Change in Medical CPI
CPI-All Items
-1%
95
96
97
98
99
00
01
02
03
04
05
06
07
08
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
09
10
11
12
13
Possible Effects of the
Affordable Care Act
(“ObamaCare”) on
Workers Compensation
67
WC Medical Severity Generally Outpaces
the Medical CPI Rate
16%
13.5%
14%
12%
10.6%
10.1%
10%
Average annual increase in WC medical
severity form 1995 through 2011 was well
above the medical CPI (6.8% vs. 3.8%), but
the gap is narrowing.
8.8%
8.3%
7.7%
7.4%
8%
7.8%
6.3% 6.6%
7.3%
5.4%
6% 5.1%
4%
5.4%
4.5%
3.5%
2%
2.8%
3.2% 3.5%
4.1%
96
97
4.0%
4.4% 4.2%
4.0%
98
99
00
01
02
03
04
05
06
3.6%
4%
4.4%
3.7%
3.2% 3.4% 3.0% 3%
Change in Medical CPI
Change Med Cost per Lost Time Claim
0%
95
4.6% 4.7%
4.1%
07
08
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
09
1.4%
10
11
12
A Few Potential Impacts of the ACA on
Workers Compensation
Issue
Surge in People
Covered by Health
Insurance
Electronic Health
Records
Concern
Contravening Argument
•
System is
overwhelmed
•
•
MD shortage
•
Patient care
adversely impacted
Over time, people will have
access to preventative care,
improving the general health of
the population
•
Greater use of PA’s, etc.
•
•
Cost
Computerization of patient data
could help flag issues and
improve risk management and
improve patient outcomes
•
Provider/patient may
•
prefer claim handled
via WC system
Reduction in uninsured
population reduces shifting
Claim Shifting
Source: Insurance Information Institute research; WCRI.
69
ACA Impact on WC May Occur via Changes
in Rates Set by State Regulators
● WC rates often tied to WC but can change for reasons independent of this link
● There could be both positive and negative effects of a cut in Medicare rates on WC performance in states
which tie reimbursement to Medicare
– WC reimbursement rates would go down
– Doctors may be unwilling to see WC patients:
 64% of Dr.’s surveyed said they would stop accepting new Medicare patients if planned rate cuts
go through; some of these same doctors may also refuse WC patients if WC rates also decrease
● These effects would likely be short lived
– All states which tie their fee schedules to Medicare already increase the Medicare rates to set WC
rates, so any drop in the Medicare rates would likely be soon offset by a higher WC adjustment
350%
WC Maximum Allowable Reimbursement Rates
300%
as Percentage of Medicare
250%
200%
WC rates tied to Medicare
150%
WC rates not tied to Medicare
100%
SOURCE: NCCI Annual Issues Symposium 2009, Medicare’s Impact on Workers’
Compensation, AMA: “Physicians’ reactions to the Medicare physician payment cuts” from
3/13/13 presentation by Christopher Cunniff, FCAS, of Liberty Mutual.
AK
IL
RI
ID
NV
OR
CT
NE
AL
MS
LA
TN
NM
AZ
MO
ME
MN
GA
OK
AR
WY
SD
KS
KY
SC
ND
CO
WA
OH
PA
NC
NY
VT
UT
MI
TX
CA
FL
MD
WV
MA
0%
HI
50%
PPACA May Have Distinct Impacts on WC
Depending on Claim Frequency/Severity
Industry Portfolio by Claim Type
Potential ACA Impact
(Relative Volume by Claim Frequency & Paid Dollars)
High
Ex: med only,
Volume, Low quick to settle,
<25K
Severity
•
Expanded coverage may shift
some small claims to the health
insurance system (+)
•
Physician access problems
could lead to indemnity
increases and may bleed into
the complicated cases (-)
•
Preventative care and early
record keeping decreases WC
comorbidities (+)
•
Soft tissue treatments, a large
portion of “slow burn claims,”
may decrease in cost (+)
Ex: back pain
Complicated claims, very
litigious
Catastrophic Ex: spinal cord
injury, multiple
Injuries
•
No significant impacts
trauma claims
Frequency
Distribution
Paid Dollars
Distribution
SOURCE: Dr. Glenn Pransky, Liberty Mutual Research Institute for Health & Safety extracted from from 3/13/13 presentation by
Christopher Cunniff, FCAS, of Liberty Mutual: Impacts of Healthcare Reform on Workers Compensation,
States of Play | Management of HealthInsurance Exchanges & ObamaCare
Some states are running new health-insurance exchanges on their own. Other are
leaving some or all of the task to the federal government.
WA
Federally Run
exchange
State-run
exchange
MT
ME
ND
MN
OR
ID
WI
SD
WY
Federal and
state joint-run
exchange
UT
PA
IA
IL
IN
OH
CO
CA
WV
KS
MO
OK
NM
VA
NJ
DE
MD
KY
NC
TN
AZ
MA
RI
CT
MI
NE
NV
NY
VT
NH
AR
SC
MS
AL
RI
GA
AK
CT
TX
LA
NJ
FL
HI
DE
MD
DC
Source: Wall Street Journal, September 20, 2013.
73
Number of People Signed Up for Health
Care Under the ACA, Oct. 1 – March 1
As of March 1, 4.2 million
people have signed up for
coverage under the ACA
since enrollment opened on
Oct. 1, 2013
UPDATE
HHS
announced
that
enrollment as
of 3/16 now
exceeds 5
million
759,800
Source: Centers for Medicare and Medicaid as of March 7, 2014:
http://aspe.hhs.gov/health/reports/2014/MarketPlaceEnrollment/Mar2014/ib_2014mar_enrollment.pdf
74
Projected Number of People with No
Health Insurance, 2013—2022*
Millions
By 2018 the number of
people under age 65 without
insurance is expected to
drop by 25 million (~45%)
65
55
55
44
45
37
35
30
31
2018F
2022F
25
15
5
2013E
2014F
2015F
The projected decline in the uninsured population is very
sensitive to the enrollment rate under the Affordable Care Act
*Under age 65.
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
75
Will Skill Shortages in the
Medical Field Adversely
Impact WC?
Concern that the ACA Will
Overwhelm the Healthcare
Delivery System, Harming
Outcomes
76
Physician Supply and Demand,
2008–2020
A potential large and growing physician gap looms over the
next decade, with potential for users of health care
Source: American Association of Medical Colleges https://www.aamc.org/advocacy/campaigns_and_coalitions/fixdocshortage/; Insurance Information
Institute.
77
Growth in Healthcare Profession by
Skill Level, 2012 – 2022F
(Thousands of Jobs)
+697,000
+24.1%
2,000
2,196
3,242
+425,000
+24.0%
1,771
3,000
2,492
2,893
4,000
+750,000
+30.1%
3,590
5,000
+1.015 Mill
+20.3%
5,005
6,000
6,020
7,000
1,000
0
Practitioners, including
RNs
Technicians, including
LPNs
2012
Source: Bureau of Labor Statistics, Insurance Information Institute.
Aides
Other
2022
80
Workers Compensation
Operating Environment
The Weak Economy and Soft Market Have
Made the Workers Comp Operating
Increasingly Challenging
81
Workers Compensation Combined
Ratio: 1994–2014F
104.0
105.0
109.0
115.0
115.0
110.6
104.5
103.5
102.7
105.1
112.6
108.6
101.0
98.5
100
100.0
105
97.0
110
102.0
115
107.0
120
121.7
115.3
125
118.2
130
WC results have
improved markedly
since 2012
95
90
85
80
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F
Workers Comp Results Began to Improve in 2012.
Underwriting Results Deteriorated Markedly from 20072010/11 and Were the Worst They Had Been in a Decade.
Sources: A.M. Best (1994-2009); NCCI (2010-2012P) and are for private carriers only; Insurance Information Institute (2013-14).
82
Return on Net Worth, 2003-2012,
Workers Comp vs. All P/C Lines
US WComp
(Percent)
US All P/C Lines
16%
14%
Average: 2003-2012
WC: 7.1%
All P/C Lines: 7.9%
14.4%
12%
10.1%
10%
9.5%
8%
6.9%
10.0%
10.0%
12.5%
9.0%
9.6%
5.3%
6%
8.0%
5.1%
4.2%
6.3%
6.2%
3.9%
4%
5.9%
5.8%
4.9%
2%
2.4%
0%
03
04
05
06
07
08
09
10
11
12
WC Has Been Marginally Less Profitable than the P/C Insurance
Industry Overall
Sources: NAIC, Report on Profitability by Line by State in 2012.
83
Workers Comp Return on Net Worth, 2012
Top 25 States
9.4
9.1
9.0
8.9
8.7
8.6
8.5
8.4
8.3
8.1
ME
FL
KS
MS
KY
MN
HI
TN
NH
9.8
AK
NE
9.9
VT
10.6
TX
9.9
10.6
AL
10
MA
10.7
AR
12.9
MI
12
9 states posted
double-digit profits
in WC in 2012
11.1
13.0
NV*
12.2
13.0
14
MT*
16
14.3
Percent
8
6
4
SD
WV
0
DC
2
Sources: NAIC; Insurance Information Institute
* Denotes results exclude state funds. Other state funds are included in results
84
Workers Comp Return on Net Worth, 2012
Percent
3.7
3.7
ID
NM
4.2
NJ
3.9
4.3
WI
CO*
4.3
RI
3.9
4.3
CT
4
CA
4.4
5.3
5
NC
6.2
PA*
5.0
6.2
MO
AZ
6.3
UT
5.1
6.3
LA
IL
6.4
MD*
6
In 2012, in 7
states the Return
on Net Worth was
under 4%
5.9
6.4
6.7
SC*
IA
6.7
7
OR
6.9
7.5
8
Bottom 25 States
Sources: NAIC; Insurance Information Institute
* Denotes results exclude state funds. Other state funds are included in results.
OK*
NY
GA
US
VA
0
IN
1
DE
1.0
2
1.8
2.0
3
85
Workers Compensation Medical Severity
Moderate Increase in 2012
Medical
Claim Cost ($000s)
30
Average Medical Cost per Lost-Time Claim
+3%
+3.6%
AnnualChange
Change1991–1993:
1991–1993: +1.9%
+1.9%
Annual
AnnualChange
Change1994–2001:
1994–2001: +8.9%
+8.9%
Annual
AnnualChange
Change2002–2011:
2002–2010: +5.7%
+6.0%
Annual
25
+4.1%+1.4%
+6.6%
+6.3%
+5.4%
+7.8%
Cumulative Change = 252%
(1991-2012p)
20
+5.4%
+7.7%
$28.5
$26.7
$26.4
$23.7
$22.3
$21.2
$18.7
$17.3
$14.0
$13.1
$9.2
$8.8
$8.1
$8.2
$8.1
5
$9.9
+6.8%+1.3%-2.1%
$11.8
+7.4%
+9.0%+5.1%
$10.9
10
$15.9
+8.3%
+10.1%
$19.7
+7.3%
+10.6%
15
$25.3
+13.5%
$27.7
+8.8%
Accident
Year
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
2001 2002
2003 2004 2005 2006 2007 2008 2009 2010 20112012p
Accident Year
2012p: Preliminary based on data valued as of 12/31/2012.
1991-2011: Based on data through 12/31/2011, developed to ultimate
Based on the states where NCCI provides ratemaking services including state
87 funds, excluding WV; Excludes high deductible policies.
Workers Comp Indemnity Claim Costs:
Small Increase in 2012
Average Indemnity Cost per Lost-Time Claim
Indemnity
Claim Cost ($ 000s)
Average indemnity costs
per claim were up 1% in
2012 to $22,400
25
23
+2.2% +1%
+8.8%+0.7%
-3.0%
+6.2%
21
Annual Change 1991–1993:
Annual Change 1994–2001:
Annual Change 2002–2011:
19
17
-1.7%
+7.3%
+3.2%
+4.6%+1.0%
+3.1%
+9.2%
+5.6%
+3.1%
+10.1%
$22.4
$22.2
$21.7
$20.8
$19.2
$18.2
$17.7
$16.7
$16.2
$14.8
$13.5
$12.2
$11.2
$10.4
$9.8
$9.7
$9.2
$9.5
7
$9.8
9
$17.5
+9.0%
+7.7%
+5.9%
11 +1.0%-3.1%
+4.9%+1.7%
-2.8%
13
$22.4
+10.1%
$22.2
15
5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012p
Accident Year
2012p: Preliminary based on data valued as of 12/31/2012.
1991-2011: Based on data through 12/31/2011, developed to ultimate
Based on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
Workers Compensation Lost-Time
Claim Frequency Declined in 2012
Lost-Time Claims
Percent
12
11
Cumulative Change of –55.4%
(1991–2011 adj.)
10
8
Frequency Change: 2007—2012
6
Contracting: 7.97.1
-9.3%
4
Manufacturing: 13.612.0
-11.8%
2
Indicated
Adjusted
3.8
0.5
0.3
0
-0.9
-2
-6
-8
-10
-2.2
-2.3
-4
-4.2 -4.4
-4.5
-6.5
-3.9
-3.7
-4.5 -4.1
-4.5
-4.5
-4
-4.3
-5.7
-6.9
-5.0
-6.6
-9.2
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20112012p
Accident Year
*Adjustments primarily due to significant audit activity.
2012p: Preliminary based on data valued as of 12/31/2012
1991–2011: Based on data through 12/31/2011, developed to ultimate
Based on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policies
Frequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost level
89
Workers Compensation Premium:
Second Consecutive Year of Increase
Net Written Premium
$ Billions
50
46.5
State Funds ($ B)
47.8
46.5
44.3
Private Carriers ($ B)
42.3
40
31.0 31.3
30
34.6 33.8
32.1
29.8 30.5 29.1
28.2
26.3
26.9 25.9
25.0
10
36.4
28.6
20
31.0 31.3 29.8 30.5
29.1
39.6
39.3
37.7
34.7
26.3 25.2
25.0 26.1
24.2 23.3
22.3
29.2
31.1
37.8 38.6 37.6
33.8
30.3 29.9
32.3
35.2
Pvt. Carrier NWP growth
was +9.0% in 2012, the
best since 2005
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20112012p
p Preliminary
Calendar Year
Source: 1990–20102p Private Carriers, Annual Statement Data, NCCI.
1996–2012p State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
State Funds available for 1996 and subsequent
Direct Premiums Written: Workers’ Comp
Percent Change by State, 2007-2012*
-10.2
-10.8
-11.6
NM
TX
MD
-5.4
PA
-9.7
-4.7
VA
AK
-3.9
IL
-9.2
-3.6
MN
US
-2.7
MI
-9.1
-2.5
NJ
VT
-1.8
WI
-6.8
-1.1
IN
NH
-0.3
0.2
CA
NE
0.8
CT
KS
NY
SD
IA
4.0
12.4
18.8
21.7
27.9
30
25
20
15
10
5
0
-5
-10
-15
-20
-25
-30
OK
Pecent change (%)
Top 25 States
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
93
Direct Premiums Written: Worker’s Comp
Percent Change by State, 2007-2012*
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
NV
DE
HI
-49.1
-43.4
-38.3
-35.1
FL
OR
UT
AZ
MO
AL
SC
NC
ME
LA
ID
AR
GA
MS
RI
MA
DC
States with the poorest
performing economies also
produced the most negative
net change in premiums of
the past 5 years
-33.9
-26.0
KY
-31.8
-25.5
CO
-27.4
-24.6
MT
-21.9
-20.8
-19.9
-18.3
-17.8
-16.9
-16.6
-16.0
-15.9
-15.5
-15.4
-14.3
-12.9
-12.1
-10
-15
-20
-25
-30
-35
-40
-45
-50
-55
-60
TN
Pecent change (%)
Bottom 25 States
94
Change in Commercial Rate Renewals,
by Line: 2013:Q3
Percentage Change (%)
Workers Comp rate
increases are large than
any other line, followed
by Property lines
7.0%
6.0%
5.8%
4.7%
2.7%
2.9%
2.9%
Umbrella
General
Liability
3.3%
3.5%
Commercial
Property
2.9%
Business
Interruption
3.0%
Construction
4.0%
Commercial
Auto
5.0%
2.0%
5.4%
1.0%
Workers
Comp
EPL
D&O
0.0%
Surety
1.0%
Major Commercial Lines Renewed Uniformly Upward in Q3:2013 for the 9th
Consecutive Quarter; Property Lines & Workers Comp Leading the Way; Cat
Losses and Low Interest Rates Provide Momentum Going Forward
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
97
3.4%
3.7%
6.2%
7.0%
6.0%
6.1%
5.8%
5.1%
5.1%
3.2%
3.6%
4.1%
4.7%
3.9%
4.4%
4.1%
4.4%
3.9%
4%
4.3%
5%
4.0%
6%
4.4%
7%
5.5%
8%
6.0%
9%
5.6%
10%
8.6%
P/C growth is expected
to remain fairly stable
through 2015
7.5%
(Percent)
8.0%
Growth in Direct Written Premium by
Line, 2013-2015F*
3%
2%
1%
0%
All Lines
Personal
Lines
Commercial
Lines
Personal Homeowners Commercial
Auto
Auto
2013F
Source: Conning.
2014F
WC
CMP
GL
2015F
99
INVESTMENTS:
THE NEW REALITY
Investment Performance is a Key
Driver of Profitability
Depressed Yields Will Necessarily
Influence Underwriting & Pricing
103
Property/Casualty Insurance Industry
Investment Income: 2000–2013*1
($ Billions)
$60
$54.6
$52.3
$50
$40
$51.2
$49.5
$49.2
$47.1
$38.9
$38.7
$37.1
$36.7
01
02
$39.6
$47.7
$47.6
$45.8
Investment earnings are
running below their 2007
pre-crisis peak
$30
00
03
04
05
06
07
08
09
10
11
12
13*
Investment Income Fell in 2012 and is Falling in 2013 Due to Persistently
Low Interest Rates, Putting Additional Pressure on (Re) Insurance Pricing
1
Investment gains consist primarily of interest and stock dividends..
*Estimate based on annualized actual 9M:2013 investment income of $34.338B.
Sources: ISO; Insurance Information Institute.
U.S. Treasury Security Yields:
A Long Downward Trend, 1990–2014*
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade.
8%
7%
6%
U.S. Treasury
yields plunged to
historic lows in
2013. Only
longer-term
yields have
rebounded.
5%
4%
3%
2%
1%
0%
Recession
2-Yr Yield
10-Yr Yield
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations,
most P/C insurer portfolios will have low-yielding bonds for years to come.
*Monthly, constant maturity, nominal rates, through February 2014.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institute.
109
Treasury Yield Curves:
Pre-Crisis (July 2007) vs. Feb. 2014
6%
5%
4%
3%
2%
4.82%
4.96%
5.04%
4.96%
4.82%
4.82%
Treasury yield curve remains
near its most depressed level in
at least 45 years. Investment
income is falling as a result.
Even as the Fed “tapers” rates
are unlikely to return to pre-crisis
levels anytime soon
4.88%
5.00%
4.93%
5.00%
5.19%
3.66%
3.38%
2.71%
2.15%
1.40%
0.69%
1%
0.05%
0.05%
0.08%
0.12%
1M
3M
6M
1Y
0.33%
Feb. 2014 Yield Curve
Pre-Crisis (July 2007)
0%
2Y
3Y
5Y
7Y
10Y
20Y
30Y
The Fed Is Actively Signaling that it Is Determined to Keep Rates Low
Until Unemployment Drops Below 6.5% or Until Inflation Expectations
Exceed 2.5%; Low Rates Add to Pricing Pressure for Insurers.
Source: Federal Reserve Board of Governors; Insurance Information Institute.
110
Outlook for U.S. Treasury Bond Yields
Through 2015
Long-term yields should
begin to normalize in 2014
but short-term yields will
remain very low until 2015
% Yield
4.20
4.5
4.0
3.5
3-Month
5-Year
3.50
10-Year
3.0
2.35
2.5
2.0
1.80
1.80
1.5
1.40
1.17
0.76
1.0
0.5
2.30
0.10
0.09
0.06
0.0
2012
2013
2014F
2015F
Longer-tail lines like MPL and workers comp will benefit the
most from the normalization of yields
Source: Federal Reserve Board of Governors (2012-2013), Swiss Re (2014-2015); Insurance Information Institute.
112
Financial Strength &
Underwriting
History Suggests that WC, Like
Other Long-Tailed Lines Is Much
More Difficult to Underwrite
113
P/C Insurer Impairments, 1969–2012
Impairments among P/C
insurers remain infrequent
0
16
19
21
14
15
21
34
35
18
19
12
16
18
31
29
9
13
12
9
9
11
5
7
8
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
10
15
12
20
16
14
13
19
30
31
34
34
40
36
41
50
49
50
47
49
50
48
55
60
60
58
70
The Number of Impairments Varies Significantly Over the P/C Insurance
Cycle, With Peaks Occurring Well into Hard Markets
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,” June 2013;
Insurance Information Institute.
114
P/C Insurer Impairment Frequency vs.
Combined Ratio, 1969-2012
120
Combined Ratio after Div
P/C Impairment Frequency
2.0
1.8
1.6
1.4
110
1.2
1.0
105
0.8
100
0.6
Impairment Rate
Combined Ratio
115
0.4
95
2012 impairment rate was 0.69%, down from 1.11% in 2011; the
rate is lower than the 0.82% average since 1969
0.0
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
90
0.2
Impairment Rates Are Highly Correlated With Underwriting Performance
and Reached Record Lows in 2007; Recent Increase Was Associated
Primarily With Mortgage and Financial Guaranty Insurers and Not
Representative of the Industry Overall
Source: A.M. Best; Insurance Information Institute
115
Number of Recessions Endured by P/C
Insurers, by Number of Years in Operation
Number of Recessions Since 1860
35
Insurers are true survivors—not just of natural
catastrophes but also economic ones
32
30
27
25
20
20
13
15
10
8
5
0
1-50
51-75
76-100
101-125
126-150
Number of Years in Operation
Many US Insurers Are Close to a Century Old or Older
Sources: Insurance Information Institute research from National Bureau of Economic Research data.
116
Reasons for US P/C Insurer
Impairments, 1969–2012
Historically, Deficient Loss Reserves and Inadequate Pricing Are
By Far the Leading Cause of P-C Insurer Impairments.
Investment and Catastrophe Losses Play a Much Smaller Role
Reinsurance Failure
Sig. Change in Business
Misc.
Investment Problems
3.1%
3.5%
8.4%
6.6%
Deficient Loss Reserves/
Inadequate Pricing
(Overstatement of Assets)
43.4%
8.0%
Affiliate Impairment
7.1%
Catastrophe Losses
7.2%
Alleged Fraud
12.6%
Rapid Growth
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,”
June 2013; Insurance Information Institute.
117
Top 10 Lines of Business for US P/C
Impaired Insurers, 2000–2012
Medical Professional Liability Accounts for Only About 2% of Industry DPW
but 6.7% of Insurer Impairments
Other
Title
Surety
8.6%
4.0%
19.7%
Workers Comp
4.8%
Med Mal
6.7%
22.2%
Other Liability
8.6%
Pvt. Passenger Auto
7.3%
Commercial Auto Liability
8.8%
Commercial Multiperil
9.2%
Homeowners
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,”
June 2013; Insurance Information Institute.
.
118
Workers Compensation
The NEXT 100 Years
119
Workers Compensation Timeline
 Industrialization of US in the Late 19th/Early 20th Century Led to Increasing
& Unacceptably High Number of Deaths and Injuries Among Workers
 In 1912, an estimated 18,000 to 23,000 workers were killed on the job (compared to
5,071 in 2008) and approximately 4.7 million (12% or workforce) suffered a nonfatal
illness or injury (compared to 3.7 million 2008)
 The 1912 death/injury rates would imply 75,600 deaths and 17 million injuries today
 More awareness of broader impacts on families of injured/killed workers
 Workers Could Seek Redress Under Tort Law, But Seldom Prevailed
 Employers usually won suits filed by injured workers by arguing:
– Contributory Negligence: Employee was at least partially to blame for the accident
– Assumed Risk: By taking the job, the employee understood the hazards involved
– Fellow Servant Rule: A fellow worker caused the accident, so the employer was not at fault
 European Countries Began to Implement Workers Compensation Programs
 Germany (1884); England (1897)
 Insurers Began to Sell Commercial Liability Coverage in the Late 1800s
 Coverage for inadvertent errors became more commonplace
 In the workforce, such policies became the first employer liability policies
Source: Insurance Information Institute.
121
Cumulative Number of WC Laws
Passed, 1910-1920
45
No. of states
37
40
32
35
42
43
1919
1920
38
32
30
22
25
24
20
15
New York was the first state to pass a
WC law in 1910, and Ohio was one of
the first ten when its law passed in
1911. By 1920, 43 of the 48 states at
that time had passed WC laws
13
10
10
5 1
0
1910
1911
1912
1913
1914
1915
1916
1917
1918
Source: http://eh.net/encyclopedia/article/fishback.workers.compensation; Insurance Information Institute.
123
Workers Compensation:
4 Predictions for the Next 100 Years
1. The Workplace Will Become Safer
 Continuation of a nearly century long trend
 Deaths and injuries will continue to fall and perhaps plummet due to improvements in
risk management, technology and medicine
 Technologies such as autonomous (driverless vehicles) will likely be a reality within 2025 years causing motor-vehicle related fatalities and injuries (including MSDs) to fall
2. The Footprint of Federal Regulation on Insurance Will Increase
 TRIA: Workers comp is arguably the most TRIA-dependent line
 Post-Dodd-Frank: One (and in the future perhaps more) Systemically Important
Financial Institution (SIFI) is a big WC insurer; The Fed is the ultimate regulator of SIFIs
 Other WC insurers and reinsurers could be designated as Internationally Active
Insurance Group (IAIG); Impact of this in the US is still unclear; More capital?
 Federal Insurance Office (FIO): Pushing for greater consistency in state regulation
 Affordable Care Act and subsequent healthcare legislation
 Will the federal government take direct interest in WC?
– It already has (e.g., TRIA) but will not seek to completely usurp states
– As WC medical loss share rises, WC will get pulled into a tighter federal orbit
 Insurers could once again resurrect the Optional Federal Charter debate
 Bottom Line: The federal regulatory camel’s nose is under the tent; The hump is next.
Source: Insurance Information Institute.
124
Workplace Fatalities, 1945-2012
18,000
Fatalities
Rate per 100,000 Workers
16,000
35
30
25
Fatalities
12,000
10,000
20
8,000
15
6,000
10
4,000
5
45
50
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
2,000
0
Rate per 100,000 Workers
14,000
0
Workplace deaths and injury rates have been falling for decades—trends
that will likely continue for many years to come
Source: Bureau of Labor Statistics; National Safety Council; Insurance Information Institute
U.S. Workforce Injury & Illness Rates,
1973-2012
(Injuries and Illnesses per 100 Full-Time Workers)
20.0
Total
Manufacturing
16.0
Construction
12.0
8.0
4.0
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
0.0
Workplace injury rates have declined in all industries from 11.0 in 1973 to 3.4 in
2012; in the same period injury rates in manufacturing declined from 15.3 to 4.3 and
in construction from 19.8 to 3.7.
Sources: Bureau of Labor Statistics; Insurance Information Institute
126
Frequency: 1926–2009
A Long-Term Drift Downward
Manufacturing – Total Recordable Cases
Rate of Injury and Illness Cases per 100 Full-Time Workers
30
25
20
15
10
5
'26
'28
'30
'32
'34
'36
'39
'41
'43
'45
'47
'49
'52
'54
'56
'58
'60
'62
'65
'67
'69
'71
'73
'75
'78
'80
'82
'84
'86
'88
'91
'93
'95
'97
'99
'01
'04
'06
'08
'10
0
Note: Recessions indicated by gray bars.
Sources: NCCI from US Bureau of Labor Statistics; National Bureau of Economic Research.
127
Workers Compensation:
5 Predictions for the Next 100 Years
3. Businesses Will Retain More Risk
 Large deductible programs, self-insurance and use of captives will grow
 Driven by more sophisticated risk management throughout corporate America and buildup of cash on corporate balance sheets (phenomenon of increased risk retention is
occurring for most types of property and liability risks)
 Some catastrophic WC exposures could be securitized
4. Medical Costs Will Continue to Rise
 Technology, advancements in medicine will drive costs higher
 Co-morbidities persist but may plateau; May improve over the span of decades
 Supply/Demand imbalances for med services unlikely to persist beyond next 20 years
 Consolidation in the healthcare space is likely; Net impact is upward price pressure
 Digitization of patient med records per ACA is costly but ultimately should save money
 BUT: “Big Data” drive should improve patient outcomes and lower costs
 IF: Population projections are correct, aging will be less of an issue after 2030 or so
 AND: People will live significantly longer but will not work that much longer
Source: Insurance Information Institute.
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Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
Twitter: twitter.com/bob_hartwig
Download at www.iii.org/presentations
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