I recently attended the annual sales meeting for Accident Fund here in Indiana. I was pleased that they take the time to share not only their statistical results for the year, but some of the causes for those trends. The information they shared is helpful for consumers who want to understand some of the ways they can continue to try and control workers' compensation costs.
The first piece of information to share is that premiums shall continue to rise. Of all lines of insurance, workers' compensation is seeing the most increase in premiums. All lines of commercial insurance are increasing, but workers' compensation is leading the way for the second year in a row.
Medical cost inflation seems to be the main driver in the poor underwriting experience carriers have suffered through. That seems to have stabilized with some of the underwriting corrections over the past few years.
Yet, while carriers are trying to maximize efficiency, and underwrite more profitably, the reduction in investment income continues to impact results. A carrier with a 95% combined ratio will make less money than they would have with a 100% combined ratio in 2003. This trend will only get worse as long term investments with locked in rates of return begin to mature and are rolled over to current investments with lower returns. The message is clear, premiums will increase if losses warrant it on any particular account.
The second part of the message is that insurance companies are becoming very good at mining their data. For years insurance companies have had mountains of data within their systems, but the systems weren't designed to spit it back out. Now we are seeing an increase in analytics, being used everywhere from underwriting to claims.
The trend in underwriting has a negative reputation because it can be relied on too heavily, and an otherwise good risk get a large increase due simply to some underlying statistical data. When used correctly, I see this being a positive trend. Carriers are beginning to isolate risks by size, industry, and even geography. With all these factors affecting profitability, each account can be more closely reviewed and accurately priced. While a traditionally bad risk may not like this, any good account should be happy to have their price dictated by more of their own characteristics.
On the other end of the spectrum Accident Fund has taken this predictive analytics trend to claims. Many sources will tell you frequency of accidents is down, but medical severity is up. Yet, how many carriers are doing something about it? If frequency is down, then our risk management efforts can shift focus from prevention to management. What is the most largest area for management? Doctor bills!
By mining their data, Accident Fund has been able to reduce claims costs by 22% through use of providers who are sensitive to and understand work related injuries. In addition, monitoring of narcotics has been shown to greatly improve claims results. If clients are to be underwritten to a higher standard, we need a claims advocate who is helping us meet that higher standard. Sure seems Accident Fund is doing that.
Accident Fund isn't the only carrier using predictive analytics. They aren't the only company reviewing claims statistics. It is imperative as insurance buyers, that you are on top of your trends within your workplace. It is also imperative that you don't turn claims over to the carrier and hope for the best. You should be an active partner with a carrier who is concerned with helping you mitigate long term costs. If you don't feel that you are, it is time to shop. In the end you will end up feeling the impact of predictive modeling. The sooner you bite the bullet (read, the premium might not be the lowest bid) the sooner you can reap long term rewards. Moving now to a carrier who is a true partner gets you on the road to fewer claims, better managed claims, and a prettier profile for the data geeks.
No comments:
Post a Comment