Unemployment Takes Its Toll on Workers Compensation

Waiting for the Recovery

Persistently high unemployment is taking its toll on the workers compensation market. A.M. Best, an insurance rating agency, reports that net premiums written for the workers comp line declined for the fourth consecutive year in 2009, from $41.9 billion in 2008 to $36.2 billion in 2009, a decrease of 11.6%. Fewer employed workers results in lower premium volume for workers compensation coverage.  At the same time, workers comp claims typically rise in an economic downturn. Uninsured workers are more likely to attribute injuries and illnesses to work-related incidents when they cannot afford the cost of their own care. This is reflected in the 8.8 percentage point increase in the combined ratio of A.M. Best’s index of workers comp underwriters. The combined ratio rose to 120% in 2009, the highest level since 2002. This means that for every dollar the insurers collect in premiums for workers comp coverage, they pay out $1.20 in claims and expenses. Profits for workers’ comp underwriters have fallen off a cliff; the net income for the A.M. Best composite workers comp insurers fell 61% in 2009. So small businesses can expect declining capacity and rising rates in the near future.