With our 2019 results behind us, our 2020 plans in hand, and our focus directed toward April renewals, it’s a good time to take a step back from the never-ending insurance cycle to reflect.
I’d like to take this opportunity to share with you where I see the industry headed in 2020, where we fit in, and what that means for you and your policyholders.
Trends and outlook for 2020
The National Council on Compensation Insurance (NCCI) reported a workers’ compensation private carrier combined ratio of 83 in 2018, compared to a seven year average of about 100. This great result comes strictly from reserve releases from older accident years, as medical trends did not ultimately develop like insurers expected. The result is much better calendar-year loss ratios than accident-year loss ratios. The NCCI reported the 2018 accident-year combined ratio for work comp private insurers at 97, a whopping 14 points of loss ratio from reserve releases!
Reduced loss costs have caused workers’ compensation rates to drop across most, if not all, of the United States for the past four to six years. The lower rates have offset premium increases from additional hiring and actual pay increases over the past five years. While the claim frequency rate is still trending down long term, we’re seeing short-term spikes due to low unemployment and a tight skilled labor market, resulting in more overtime and hiring of less skilled workers. Will this be enough to stop rate decreases in 2020? Early state rate filings are showing no indication of that. Rates will continue to drop across most of the United States and in most SFM markets, notwithstanding Minnesota which will be flat in 2020.
The good news is that lower rates of return on insurers’ investment portfolios coupled with the lower workers’ compensation rates have forced most carriers to hold the line on additional discounting. The NCCI has reported that rates were down almost 9% in 2018 but that was almost all offset by payroll increases and a slight decrease in discounting and dividends resulting in flat overall premium.
Nationwide, carriers continue to report great workers’ compensation results due to the reserve releases mentioned earlier. How much longer will this go on? The NCCI doesn’t believe that private insurers have many reserves, if any, left to release. As insurers are forced to cover more exposure with less premium, we’re likely to see expense ratios creep up. This is likely to trickle into higher combined ratios.
SFM financials have never been stronger
At SFM, our results have been great with a combined ratio of 97 for 2018 and 99 projected for 2019. Our last seven year average combined ratio is 97, despite not releasing any reserves in the last 10 years.
We are projecting a combined ratio of around 99 in 2020. That would make it our ninth year in a row of combined ratios under 100!
Our policyholder surplus was expected to end 2019 at around $180 million and we will have reduced our premium-to-surplus ratio to about 1 to 1. Our balance sheet and underlying financial fundamentals have never been stronger, and our agent partners have been instrumental in getting us there!
Focusing on what we do best, while moving forward
For SFM, moving forward means meeting emerging challenges without losing sight of the qualities that make us exceptional. We’ll keep working hard to deliver the best customer service and risk management in the business. The following are just a few of our efforts to better serve you and our policyholders:
- We’ve increased commission rates to 20% for new policies up to $25,000 in premium in the SFM Mutual rate set for 2020.
- We’ve improved our online application system (SFM Agency Manager) to deliver a more streamlined underwriting process with an expanded range of class codes eligible for immediate binding.
- We’re aggressively increasing our territory to eliminate barriers for agents insuring multistate operations.
- We’re working to introduce IVANS Download capability later this year to automate the process of getting our data into your agency management system.
We welcome your feedback on these or any future opportunities to improve your experience or that of our policyholders.
We’re here to help you keep your customers safe, satisfied and happy with their workers’ compensation insurance experience. For nearly four decades, we’ve prided ourselves in our deep knowledge of the legal, regulatory and administrative systems of the states where we do business. It’s what makes us different, and that won’t change no matter how many states we expand into.
At the end of the day our goal is to make your job easier. We want you to be able to rest at night knowing your SFM policyholders are well taken care of without a lot of heavy lifting on your part.
If you continue to trust us and to turn to us for your growth, you will continue to be rewarded with safe, happy and satisfied customers!