1. Insurer investment returns

The financial crisis of 2008 caused insurers to write down their investment portfolios and reallocate seeking higher returns. However, with a prevalence of low-yielding investments, attractive returns were not possible. Furthermore, credit quality impaired insurer’s massive corporate bonds holdings. For insurers with an international footprint there was also the impact of the sovereign debt crisis in Europe and the drain on surplus caused by 2011 delivering one of the worst worldwide catastrophic loss years on record. Interest rates on 10-year treasury notes have been following a downward trend for over a decade and are now at all-time record lows. Since roughly 80% of the property-casualty industry’s bond/cash investments are in 10-year or shorter durations, most insurer portfolios will have low-yielding bonds for years to come. In addition, the recession reduced demand for workers’ comp (demand = payroll).

1. Insurer investment returns

The financial crisis of 2008 caused insurers to write down their investment portfolios and reallocate seeking higher returns. However, with a prevalence of low-yielding investments, attractive returns were not possible. Furthermore, credit quality impaired insurer’s massive corporate bonds holdings. For insurers with an international footprint there was also the impact of the sovereign debt crisis in Europe and the drain on surplus caused by 2011 delivering one of the worst worldwide catastrophic loss years on record. Interest rates on 10-year treasury notes have been following a downward trend for over a decade and are now at all-time record lows. Since roughly 80% of the property-casualty industry’s bond/cash investments are in 10-year or shorter durations, most insurer portfolios will have low-yielding bonds for years to come. In addition, the recession reduced demand for workers’ comp (demand = payroll).

Unhealthy, unproductive, unengaged employees are among an employer’s largest strategic risks. Employers have seen this in health insurance rates for years. Now, the workers’ compensation insurers are starting to pay attention. Workers’ compensation insurers are coming to the realization that safety programs aren’t enough. Yes, these programs are necessary and beneficial, but they don’t address the health and wellness of each individual employee and often fail to impact employee engagement focusing instead on physical hazards (e.g. machine guarding). Insurers recognize the changing demographic of today’s employees: an aging workforce that’s retiring at an older age and more likely to be overweight. This is leading to comorbid health issues like hypertension, diabetes, and high cholesterol. Taken together, these elements have the makings of a perfect storm.

Imagine this scenario: Mary is in the supply room getting a box of paper. It falls on and injures her foot. Her employer sends an incident report to their workers’ compensation carrier. A few days later, Mary’s foot is still bothering her with an ulcer forming at the impact site. Mary gets medical treatment, but the ulcer won’t heal. Fast-forward a few months to the possibility of Mary losing her foot - a complication of untreated diabetes. Of course, this is an extreme example, but it’s one that’s becoming a trend.

As Health Care Reform is implemented, the debate continues on two fronts: (1) is the law truly going to impact costs and (2) how will the millions of Americans who are currently uninsured impact provider access? While these two topics have dominated the discussion, there has been little discussion on how health literacy will impact both.

Workplace injuries are a fact of life in some industries. If you work with heavy machinery or spend your day on your feet, you are unlikely to go your entire career without injuring something. Even sitting at a desk typing all day has it’s hazards. Most business owners are very aware of the risks associated with their day-to-day business.

Something that often gets missed is the return to work plan. When people do get injured, inside or outside of work, they will eventually return. As much as you plan to avoid these injuries it’s also important to create a plan to reintegrate injured employees into your workforce.

Develop a Plan

The commercial property-casualty marketplace is holding steady thus far in 2013. The market is in a positive, rate increase environment. It evolved to this point throughout 4Q11 and 2012 and in general terms is holding at a 5-7% rate increase in commercial lines. Investment yields continue to decline while catastrophe-related results worsen for insurers, so it is quite likely that rate increases will continue in 2013. Insurers are also facing challenges on certain lines of coverage notably workers’ compensation. Overstated reserves from prior years have been released which tends to temporarily help earnings, and with medical inflation eroding workers’ compensation loss ratios underwriters will focus on pricing integrity and risk selection. Employers with hazardous workers’ compensation exposures and claims experience will see the highest rate increases.

Meanwhile, insurers have the surplus to grow. Rate actions, while positive, are not enough to allow the industry to cover its cost of capital. Thus, underwriters will continue to look at developing market share which will create competition as the economy continues its fight to fully emerge from the recession.

When we talk about risk management and risk assessment, the focus is often on the big issues. But it’s not the only way to look at risk assessment. When you’re working to identify every potential risk, you sometimes need to think outside the box. Well, in this case, inside the box.

Every individual product, from food to electronics, encounters risks throughout its lifespan. As the product passes through production lines, across borders, and through the hands of numerous organizations, it encounters a wide array of risks. By applying a risk assessment to the product itself, rather than the individual businesses involved we can get a unique view.

A company experiencing a disruption of three days or more is at risk of going out of existence. Disruptions like natural disasters (storms, tornados), human risk (infectious disease, labor disputes) and business risks (financial crisis, supply chain) are a few of the events that can affect a business. Within two years, of the companies that experience this kind of delay, 70% will fail. After five years that figure rises to 90%. The majority of companies will have insurance coverage, but this may not be enough to protect them in the long-term. The key to a business surviving one of these events is to be prepared for every eventuality.

Manti T’eo. Today, it's not about his prowess as a sportsman but about a social media hoax. As it stands no one knows for sure what happened. And Manti T’eo will probably never shake the specter of the story. It will follow him forever no matter the outcome.

It's not a common storyline,

Sandy devastated the non-hurricane prone Northeast and, for good measure, it left a blizzard in West Virginia. Preliminary estimates are as high as $20 billion, and this number is only for insured losses. To add insult to injury a Nor'easter left behind record snowfall totals from New Jersey to Maine just 8 days later. However, the impact on insurance rates is not likely to be significant despite the estimates of it being the third costliest storm in U.S. history.