At the Louisiana State Advisory Forum in Baton Rouge on Tuesday, NCCI proposed a 9.8 percent loss cost decrease for next year. If approved by regulators, it will take effect on May 1st, 2017. NCCI representatives speaking at the Forum (Laura Bryan, Nadege Bernard and Susan Schulte) explained that the relatively steep decrease is due mainly to decreased claim frequency across the state.
Nadege Bernard, actuary with NCCI, gave the breakdown on the loss cost decrease, stating that loss development trends are favorable and that Louisiana is basically in line with the rest of the region, which has also received decrease proposals from NCCI in recent weeks – 7.8 percent in Texas, 0.5 percent in Georgia, 12.1 percent in Alabama, and 12.8 percent in Tennessee.
According to NCCI, the loss cost filing is due to: -10 percent experience and trend; +0.2 percent benefits (basically just increase in average weekly wage); and 0.0% loss-based expenses.
Regarding frequency, which is the major driver of loss cost decreases (as opposed to severity), Bernard explained, “Generally, frequency is declining in Louisiana. We’ve gone from thirteen claims per one million dollars in premium [in 2006] to about 9.9.” Additional data showed that since 2011, Louisiana has experienced a 50.2 percent cumulative decrease in lost time claim frequency, slightly more than 3 percent per year on average.
Bernard noted, “Louisiana’s average claim frequency [all claims, not just lost time] is among the lowest in the region and well below the national average at 2,319 claims per 100,000 workers.” The countrywide average sits at 3,279 and the region averages 3,204. Louisiana’s low claim frequency status also extends to lost time claims with 644 lost time claims per 100,000 workers, versus 818 on average in the region and 813 countrywide. However, it wasn’t all good news. “In Louisiana we have more temp total claims than the country and the region,” she said.
Industry leaders had mixed feelings about the filing, which represents yet another pressure on profits in a persistently soft market for workers’ comp, not to mention the low interest rate environment. However, the business community usually cheers rate decreases, because it reflects safety efforts (Louisiana is the safest state in the nation according to the Bureau of Labor Statistics, aside from Washington D.C.) and reduces costs to businesses for which comp can be very expensive, like construction.
Troy Prevot, Executive Vice President of Baton Rouge-based LCTA Workers’ Comp, speaking just after the announcement explained: “NCCI always puts so little weight on medical costs and so much on frequency. As long as we can keep the [Medical Treatment] Guidelines in play and they’re used the way they are meant to be used we can temper some of this. But what worries me is that we might be going back to those big swings we saw in the earlier part of the last decade. What’s going to happen is that combined ratios are going to shoot up and in a few years they’ll have to hike the rate way back up. And that’s bad for insurers and employers – [the rate swings] drive competition out, and I think, drives artificial inflation.”
Mark Tullis, Administrator of LCI Workers’ Comp, largely agreed with Prevot, saying that the decrease appears good for business. “However, it must be noted that it isn’t just rates that is driving down workers’ comp premium, it is competition too,” Tullis said. “The workers’ comp market in Louisiana is very competitive because of the large number of carriers willing to write comp in the state. This includes national and many Louisiana-based carriers. This soft market that we’re in now is several years old and has already taken its toll on the profitability of some workers’ comp carriers. If the line ceases to remain profitable then some carriers could reduce their comp exposure or stop writing comp altogether in the state – both of which is bad long-term for the business community.”
Nationwide legislative issues also pointed to trouble on the horizon for some carriers. Susan Schulte, who monitors legislative activity for NCCI from her office in Missouri, broke down the top five issues the organization is tracking as potential rate change triggers: first responder presumptions; employer/employee definition changes in the “sharing economy;” medical cost management through measures like guidelines and formularies; independent contractors and misclassification issues; and exclusive remedy challenges.
NCCI also announced the retirement of Cathy Booth at the Louisiana State Advisory Forum. Booth worked with NCCI from 1981 until this year and served the Louisiana market, she is also a well-known in the industry as an LSU mega-fan.
Editor’s’ Note: LCI Workers’ Comp is the sole sponsor of Louisiana Comp Blog. Opinions expressed belong entirely to those to whom the quote is attributed.