Staff’ Compensation Ought to See Revenue This Yr However Perhaps Not in 2021: Fitch

Despite the economic challenges posed by the coronavirus pandemic, the labor indemnity insurance market is expected to be highly profitable in 2020 due to savings from lower claims frequency, which Fitch Ratings currently says outperforms pandemic losses.

However, Fitch analysts warn that underwriting performance is likely to deteriorate in 2021 and beyond, as claims activity normalizes as business activity increases and premium income continues to decline amid recent reductions in underwriting exposure and competitive pricing forces.

According to Fitch, employee compensation insurance has consistently been the most profitable segment in the US trading lines over the past five years, with an average combined ratio of 91% from 2015 to 2019. The loss reserves were also unusually strong with a favorable previous year development of 15% of the premium earned in the calendar year in 2018 and 2019.

While the events remain very fluid, the results of employee compensation have remained favorable overall since the start of the year. The direct loss ratio of 50% remained unchanged in the first half of this year compared to the first half of the previous year.

According to reports, the frequency of claims has decreased significantly, likely due to the slowdown in economic activity and greatly reducing employees’ working hours in the workplace. The California Workers’ Compensation Insurance Rating Bureau (WCIRB) reported that claims incidence decreased 10% for claims and 33% for medical claims compared to the same quarter last year.

Pandemic-related long-term or catastrophic claims have also previously been limited. However, there is still uncertainty about the longer-term health effects of more severe virus cases, including the potential for serious organ damage and other chronic diseases that would ultimately increase workers’ compensation costs.

Pandemic-related cases account for 7.4% of year-to-date claims, of which 99% have made payments of less than $ 10,000. This emerges from the Florida Division of Workers’ Compensation’s latest 2020 COVID-19 report.

Due to previous profitability, employee compensation is the only major segment for commercial lines that has not seen significant premium increases. The segment’s directly booked premiums fell by 9% in the first half of this year compared to the same period in the previous year. “These volume declines are likely to continue for the near future as underwriting exposure diminishes, employers’ payroll decreases and the impact of negative premium audits occurs,” the report said.

The negative pressure on premium rates can pause for a moment in view of the current economic uncertainty, but will not ease significantly in the next few years. Future premium volumes will also depend on the pace of economic recovery, recognizing that improvements in employment and wages will be uneven across all sectors.

Fitch said the strength of the economic recovery will also affect the future frequency of claims. However, some of the sweeping socioeconomic shifts in response to the pandemic could have longer-term implications for both worker compensation risk risk and damage costs, Fitch adds.

According to analysts at Fitch, increased use of telemedicine in case management, more work from home, and less travel activity by employees all affect the severity and frequency of claims.

Source: Fitch Ratings

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