April 1, 2010
In his 1970
classic book "Future Shock," author Alvin Toffler provided an
excellent study in how humans will deal with rapid technological and social
change in the 21st century.
Toffler
concluded that people will find it increasingly difficult to cope with the rate
of change in the future because of what he describes as "over-choice."
Too many choices, requiring too many decisions to be made.
He went on to
talk about two different approaches to decision making: One is rational, the
other intuitive. For our discussion here, let's just explore a rational
approach to the decision making that must take place in our business today as we
live with the rapid changes in the economy, the investment markets, financial
services regulation, the recently passed health (insurance) reform and more.
The last two
years have presented many challenges to the workers compensation market and to
our AASCIF members. There has been more competition for business, which affects
both policy counts and premium volume. The National Council on Compensation
Insurance has noted that the increase in unemployment (less payroll) has
had a direct effect on the workers compensation market and has exacerbated the
decline in written premium in recent years. In a recent market outlook paper by
NCCI President Stephen Klingel, he indicated that the total workers compensation
net premium dropped for the third straight year in 2008, by another 12%, to $39
billion.
As premium
drops, expenses keep rising, putting pressure on expense ratios. Even though
increases in medical cost of claims have tempered in recent years, they still
increased by 6.7% in 2008. All in all, NCCI estimates the combined ratio for the
workers compensation industry at 100% for the 2008 accident year.
In addition to
NCCI's research on the workers compensation market, Conning Research and
Consulting's Quarterly Market Report affirms that while premiums are declining,
losses keep rising. Conning projects increasing combined ratios over the next
three years.
In addition to
the rational decisions, each AASCIF member will have to make in their own
jurisdictions, and they are many and varied, our U.S. based members and
Associate members will need to be vigilant and address the issues in Washington,
D.C. like the final language and implementation of healthcare reform may have on
the workers compensation business.
While it is
too early to tell what may happen, here are some thoughts of one Washington
observer: First, and perhaps foremost, the law of unintended consequences will
eventually operate. Second, will there be cost shifting resulting from providers
depending on the relationship of health and workers compensation reimbursement?
Third, as increased access to healthcare, cost controls and delivery rules work
their way through the system, will they impact providers who treat for workers
compensation? Also, state legislatures may feel some pressure to conform certain
benefits to new federal rules.
With all of
these things going on — in the economy, in the market, in the various
jurisdictions and in Washington — Toffler's description of "over
choice" may have arrived: so many choices, so many decisions!
How all of
this will play out, only time will tell, but AASCIF can serve an important role
to communicate, educate and inform our members on the rapid technological and
social changes that will come.
Sincerely,
Dennis W. Smith
AASCIF President
2009 - 2010
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