I attended the 2015 NCCI Annual Issues Symposium this past spring, which is one of the most important annual events for workers compensation carriers.
A few key takeaways were: underwriting results improved again, frequency continues to decline and Net Written Premium has grown for the fourth straight year. Unfortunately for insurers and reinsurers, the growth in NWP did not come from rate increases but rather from rising payroll.
The US economy is recovering, although manufacturing and construction are recovering slowly. With technology leading to increased automation, what’s the outlook for payroll, the principal exposure for workers compensation? The Central Bank says 80 million jobs are at risk from automation and the most at risk are low wage jobs. How will the economic recovery impact workers compensation if low wage payrolls decline?
Many of those jobs are higher hazard, with higher workers compensation rates and less crediting. For those reasons they are likely candidates for reinsurance. One could argue that automation will drive down claim frequency and severity, but at what cost? With a reduction in workers compensation exposure we could see an increase in cyber liability exposure.
Automation doesn't just affect manufacturing and construction; there will be an effect on the auto industry with the introduction of autonomous vehicles. Further, as IBM's Watson super computer is introduced into the mainstream workplace, a myriad of other classes of business are sure to be affected as well. The first class code that comes to mind is 8810-Clerical.
Change is inevitable and technological advances create new demands and new exposures, leading to the development of new insurance products. But what about the insurance products that have been around for over a century? I'm not implying that the workers compensation line will be totally eliminated by automation but with an evolving workplace and the uncertainty in payroll growth the outlook for this long tailed line of business is even more uncertain.