Tuesday, May 19, 2015

Robert Hartwig on the Workplace of Tomorrow

The NCCI Annual Issues Symposium was in Orlando last week. An interesting gathering of various constituents of the workers' compensation world. I could not stay long, but long enough to hear two great programs. Robert Hartwig of the Insurance Information Institute presented the Workplace of Tomorrow, and Salim Ismail of Singularity University. Mr. Ismail's presentation foretold big changes coming for our economy generally. 

Mr. Hartwig provided an overview of the marketplace that is property and casualty (P&C) insurance. This is a very broad product line, including insurance on cars, homes, factories, and workers' compensation. He noted that profits in this market have followed a "peak and valley" pattern. There were valleys in 1975, 1984, 1992, and 2001. For some reason, no deep valley since then. 

He provided a very interesting overview of insurance industry profitability, charting such events as hurricane Andrew, September 11, the hurricane landfall clusters around the turn of the century, and Sandy. Mr. Hartwig also provided illustration of the "peak and trough" pattern of written insurance premiums, with reference to such historical points as World War II, "The Great Depression" and the "Great Recession." The emerging patterns and historical references were intriguing. 

One notable conclusion is that the marketplace is in a "very strong financial position." The surplus at the end of 2014 was a record $674.7 Billion. 

There is evidence of premium growth in some state's markets. Several of these are in the great plains. Mr. Hartwig noted that these states were not as engaged in the building boom that preceded the real estate bubble. They thus missed some economic benefit from that boom, but suffered less influence of the resulting over- inventory, foreclosures, and other implications. He also noted that several of these states have enjoyed recent economic growth related to expansions in energy resource exploration and retrieval there.

He noted that "states with the poorest performing economies also produced some of the most negative net change in premiums of the past 6 years." It was troubling to see Florida 6th from the bottom of his graph of percentage change. Certainly, Florida was a big beneficiary of the building boom, and the resulting inventories and foreclosures have been a burden. 

Mr. Hartwig cautioned that the current state of the P&C market  is not necessarily any guarantee of the future. He notes that there have been challenges to the P&C market, some specific to workers' compensation. 

A general concern is the low return on investments. Investment income has decreased the last three years. The income returns "are still below their 2007 pre-crisis peak." He noted that "low yields have an especially large influence on profitability of long-tailed lines like WC (workers' compensation)." 

An even more specific concern for workers' compensation is the friction or perceived friction that is currently perceived in the litigation arena. Mr. Hartwig noted the criticisms this year from Probublica and the Occupational Safety and Health Administration (OSHA). He noted that these criticisms may have centered on anecdotal examples of specific benefits. It will be interesting to see whether the questioning, such as is raised in this publicity, will continue or fade. 

Mr. Hartwig noted other challenges. The current development of "opt-out" legislation poses intriguing questions about the future of workers' compensation. If this becomes a broadly available option, who will exercise it? It is not likely to be the small or medium businesses. The largest businesses, with already existing ERISA plans in place for other employee programs are likely to be enticed by the opt-out option. These large employers, with resources and experience regarding safety and loss prevention, could be among the best risks in the pool. The loss of their participation could impact the course of the marketplace for businesses that remain in the risk pool. 

Another challenge is the litigation of challenges to the function and protection of workers' comp. Mr. Hartwig noted that there are challenges to "exclusive remedy" in several states, a prominent one, "Padgett," here in Florida. The allegation is that the "Grand Bargain has been breached and that benefits are now insufficient." 

He concludes that the "objective of trial lawyers (is) to tap into the tort system." There are benefits and burdens of the tort system also, for both sides of the debate. We in Florida continue to watch for the appellate decision in our "grand bargain" challenge, Padgett. The oral argument was at the end of March, and we approach 60 days waiting for the Third District's opinion. Floridians are Court Watching, but we are not alone. 

More than a few years ago, the Grateful Dead gave us Casey Jones. As I sat in the NCCI Annual Issues Symposium in Orlando, listening to Robert Hartwig, I somehow heard the Dead reminding me "trouble ahead, trouble behind, and you know that notion just crossed my mind." Many times people say of their weather "if you don't like it, stick around a minute and it will change." Perhaps the same can be said of comp?" With legislative action on one side and court interpretations on the other, stick around a minute change may be inevitable. 

There have been periods of stability and volatility in the history of workers' compensation. As illustrated in the overview of the Oregon Premium Study, the market moves in similarities.  The overall twenty-year trend is lower premiums across the country, even in states that have not engaged in "reform." However, it is equally apparent that states are unique in many ways and any one might be in crisis at a given time, and simultaneously others may be in a stable, calm period.  

The Dead conclude Casey Jones with "trouble with you is the trouble with me, got two good eyes, but you still don't see." And that perhaps is the cardinal sin. There are signs around us and much to take in. There is good and there is bad and no side of the debate owns all the moral high ground. The challenges of workers' compensation will continue. Some are currently foreseen, or foreseeable, by experts like Mr. Hartwig, other challenges may be more predictable.  

Hopefully we all can to listen better, understand more of each others' challenges, and continue to work towards the ultimate purpose of workers' compensation "to assure the quick and efficient delivery of disability and medical benefits to an injured worker and to facilitate the worker’s return to gainful reemployment at a reasonable cost to the employer."

Presentations like this one last week are a good start. Mr. Hartwig brought a variety of perspectives and ideas to the fore. It was well researched and presented. The bottom line is that we are in a reasonably calm period right now, but there are likely changes coming to challenge us all. 




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