Excess Workers' Compensation


How to Combat Rising Rates and Retentions in Excess Workers' Compensation Insurance

For 10 years, rates and retentions for self-insureds have been steadily (sometimes drastically) increasing. The good news is there’s a way to fight the increases, though it has little to do with insurance.

The first step to solving this, or any problem, is to understand the problem itself.  Many would say it’s simple supply and demand. As there are only seven markets left writing monoline excess workers’ compensation for qualified self-insured entities, companies and groups, the common perception is there is limited competition for each risk. That, however, is not the real root of the problem; to get to the core of the issue, one has to look at two outside economic factors that serve as the primary financial drivers on excess workers’ compensation accounts.

The first is income. Excess workers’ compensation (XSWC) carriers generate income in two ways: underwriting profit and investment income.  Typically, all carriers invest heavily in fixed income securities of durations of approximately 10 years.  According to the U.S. Department of the Treasury, on January 3, 2006, the 10-year Treasury bond yielded 4.37%.1 Today, that same bond yields only 1.74%2, meaning an XSWC carrier must reduce their combined ratio by 20 points in order to get the same return on their investment as they did 10 years ago.  The only way they can achieve this is to raise premiums and lower claims expenditures – also known as raising the retention. It’s simply a matter of how much.

The second factor driving rates and retentions higher on excess workers’ compensation accounts is future medical costs.  While investment yield has been declining, medical costs have been accelerating. In approximately 85% of all XSWC claims, the Self Insured Retention is not breached until 8-10 years from the date of the occurrence. So the carrier must fund for paying medical outcomes they will not see for nearly a decade.  When you consider the idea that medical care costs will only continue to increase or factor in advances in medical technology that will create new, more expensive treatment methods 10 years from now, it is easy to see how volatile the situation can be.

At the same time, if you consider the highly actuarial nature of XSWC underwriting, you will quickly discover there is no amount of brokering underwriters, market shopping, or general insurance wizardry that will result in a dramatically lower premium and/or retention at renewal. That’s the bad news. But thankfully, the good news is that there is still a way to bring rates and retentions down.  It takes time, discipline, and commitment.  But it can be done. 

How? Help the insured become a better risk.

When asked: “Why do you rob banks?” the famous bank robber Willie Sutton was erroneously quoted as saying, “Because that’s where the money is.”  In excess workers’ compensation for self-insureds, “where the money is” is in their claims. Claims make up roughly 90% of a self-insured’s total cost of risk compared to the insurance premium which typically ranges from three to five percent. On top of being the largest part of their total cost of risk, claims also represent the area in which a group has the most direct influence. Insurance premiums, collateral posted with the state, and TPA costs are all driven by claims costs, and are largely determined by other organizations.  Claims, on the other hand, are 100% in the hands and – more importantly – the wallets of the insured. They pay every dollar of every claim under their SIR, meaning every dollar saved is theirs to keep. So if a self-insured has $1,000,000 in claims under their SIR and can reduce their claims by just 5%, they have just saved $50,000.  That’s a much bigger savings than a slightly better rate on their insurance. And that’s just the beginning.
Self-Insureds can proactively work to reduce the frequency or severity of their claims through predictive analytics, return-to-work programs, optimized pharmaceutical benefits plans or any of a host of services designed to help achieve better medical outcomes for injured employees. There are also a wide range of services such as workplace ergonomic studies, wellness plans and employee compensation incentives to help prevent accidents from happening in the first place.  The result of taking these actions is an informed, holistic approach to safety and loss control that, over time, will bend the insured’s claims cost curve down.  Do that and the cost of insurance will follow suit. 

Changing the conversation from rising rates and retentions to managing the total cost of risk through better safety and loss control programs is the most effective way to achieve better results for the insured in the current marketplace.  It begins with asking the right questions: Is the insured getting the most out of the value-added services provided by the carriers? Is their TPA actively engaged and optimized to not just handle, but actively manage their claims?  What additional services can give them better insight and methods to prevent claims before they happen and get better care for their employees after an accident?  The discussions that arise from these questions will undoubtedly lead to answers that can begin to lower claims costs and achieve better medical outcomes for employees. That in turn will help make the self-insured individual or group a better risk for the carriers to take on, resulting in lower rates and retentions in excess workers’ compensation and leading to a more durable and cost effective self-insurance program.
This article was written by John Cooper, a broker specializing in excess workers’ compensation with AmWINS Brokerage of the Carolinas.

1 https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2006
2 https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Contact Us

To learn more about how AmWINS can help you place coverage for your clients, reach out to your local AmWINS broker.  If you do not have a contact at AmWINS, please click here.

Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.

(c) 2017 AmWINS Group, Inc.

Most Popular Insights

5 Strategies for Successful Small Business Renewals During COVID


In the current economic climate, many small businesses are struggling and some may even fail. Despite these challenges and the continued hardening market, there is opportunity for retailers to write and retain business. This article provides guidance on navigating the complex small business marketplace and helps retailers fine tune their understanding of what insurable risks will look like over the next 12 to 24 months.

What Product Recall Insurance and Risk Mitigation Plan Is Right for Your Clients?


​Product recalls are one of the most damaging events a business may encounter. In order to effectively respond to an incident, companies must be prepared with proper risk management strategies. As policy wording varies, it's also critical to ensure your clients have the right policy type in place to appropriately address their first- and third-party exposures.

State of the Market - Q2 2020


Our Q2 2020 State of the Market report provides a holistic view of highly impacted industry segments as well as overall market trends. This report is designed to help our retailers gain the knowledge they need to retain accounts, write new business, overcome challenges and capitalize on opportunities that do exist.

10 Catastrophe Claim Tips for Severe Weather Season


Severe weather can be unpredictable and strike at any time. Help your clients be prepared in the event their property is damaged by a hurricane, tornado, hailstorm or similar disaster with these 10 catastrophe claim tips.

On-Demand Webinar: COVID-19 Economic Impact and Future Outlook


As a result of the COVID-19 crisis, our industry is facing a broad array of challenges that impact insureds of every size and in every industry. In the first of a series of webinars, we hear from an economist on the financial impacts of COVID-19 and what we can expect in the future. This webinar is intended to complement your conversations with clients about how to plan for the next 12 to 24 months.

Lloyd's CEO and Property Underwriters Share COVID-19 Response and Market Update


This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Property underwriters on how they view the pandemic's impact both the Property sector and their syndicate's business.

Lloyd's CEO and Casualty Underwriters Share COVID-19 Response and Market Update


This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Casualty underwriters on how they view the pandemic's impact both the Casualty sector and their syndicate's business.

Lloyd's CEO and Professional Underwriters Share COVID-19 Response and Market Update


This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Professional Lines underwriters on how they view the pandemic's impact both the Professional Lines sector and their syndicate's business.

Flood 101: What to Know About Standard Flood Insurance


Ninety-eight percent of all United States counties were impacted by a flood event in 2018, yet many property owners remain unaware of their true risk of flood or what their existing policies cover. This article highlights key statistics about flood risk and outlines the differences between the National Flood Insurance Program and private market flood insurance.

Professional Lines Challenges and Market Response During the COVID-19 Crisis


The COVID-19 crisis has created a rapidly changing environment for the Professional Lines market. With the uncertainty of how claims will develop and the potential for increased exposure, retailers must be proactive. In this article, AmWINS specialists share their insights on why this is more important now than ever, including reactionary underwriting trends, D&O policy exclusions and impacts to EPLI, as well as the threat for increased cyber attacks and crime losses.

Small Business and Personal Lines During the COVID Crisis


Loss of revenue caused by stay-at-home orders due to the coronavirus pandemic has affected small businesses and the insurance industry serving them significantly. As retailers and carriers prioritize their focus to adapt to the “new normal” of daily transactions, underlying market dynamics remain unchanged. In this article, our experts share their insight on the current changes that we are seeing the small business and personal lines market, and how to navigate the market a this time of uncertainty.

Mind the Gap: COVID-19's Impact on the Logistics Industry


The disruptive impact of the COVID-19 outbreak on supply chains is already having a pronounced effect on the world of logistics and logistics insurance. Port closures, demand surges and production shifts are requiring nimble response to keep up with change. This article arms insurance brokers with the information needed to understand the changes taking place and plan for what is likely to occur in the months ahead.

Navigating the Casualty Market’s Response to COVID-19


The Casualty market’s response to COVID-19 is continuously evolving. With a wide array of factors already impacting this sector pre-crisis, segments of the Casualty marketplace are responding to the pandemic differently. In this article, our industry specialists share overall themes in the Casualty market and take a closer look at how various segments are being impacted.

Top COVID-19 Issues Impacting Builder’s Risk Insurance


The COVID-19 pandemic is causing historical disruption to the construction industry. These changes mean that risk mitigation strategies need to be implemented or revisited, policy language should be reviewed, and carriers should be apprised of all changes at the work-site. In this article, AmWINS specialists examine the major areas of concern for Builder’s Risk insureds, including government-mandated shutdowns, supply chain-driven slowdowns and policy wording that could limit coverage, and provide guidance for retailers to achieve the best results for their clients.

State of the U.S. Logistics Insurance Market


For decades, the logistics insurance market has been considered a sub-market of the cargo or ocean marine market. However, the continual rise of e-commerce and its effect on the global supply chain has carved out a complex and expansive industry niche. This article provides insight into the various lines of coverage, the specialized underwriting approach, and rate surges within the U.S. logistics insurance market.

Lloyd’s & the London Market’s Response to COVID-19


During the COVID-19 pandemic, Lloyd’s remains open for business and syndicates have successfully transitioned to working from home. However, there are notable changes in how the London market is approaching business. In this article, specialists from THB, AmWINS’ London broker, share their insight on consistent themes across the London Market as well as updates on various lines of business.

COVID-19 Claims Advice


There have been a lot of questions regarding COVID-19, in particular about coverage and claims handling. This claims advice is intended to offer guidance to help our retail clients through these difficult times.

Insurance Impacts of COVID-19 on the Healthcare and Senior Living Industry


As the healthcare industry remains on the front lines of battling the COVID-19 pandemic, staying abreast of the changing landscape and how the insurance market is adapting is critical to ensure new exposures are covered and renewals are successfully placed. In this article, our specialists share what they are seeing in the Healthcare and Senior Care markets, tips for risk control and mitigation, and how to get the best results for insureds.

Statute of Limitations Changes Cast a Shadow on Public Entities


​Public entities are facing a climate of change as the market continues to harden and insureds are faced with double-digit rate increases in property and liability. Contributing to this disruption are statute of limitation changes for sexual abuse victims, which have extended or removed the time limit for which a victim can file a claim. This article examines the impact of increased claim activity and discusses considerations that need to be made to better manage costs during this time of uncertainty.​

COVID-19 – Are Your Clients Covered?


The disruption to business and everyday life caused by the coronavirus (COVID-19) pandemic is resulting in an economic impact for insureds. Much of this disruption is likely not covered by insurance. We have consulted with several AmWINS insurance specialists across the Property, Casualty and Professional Lines sectors and offer a COVID-19 update.

Sign Up For Our Monthly Newsletter

Sign Up