Workers Compensation:
Opportunities and Challenges in
a Weak Exposure Environment
Workers Compensation Educational Conference
Orlando, FL
August 22, 2011
Download at www.iii.org/presentations
Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5520  Cell: 917.453.1885  bobh@iii.org  www.iii.org
Workers Compensation
Exposure Summary
There Has Been Tremendous
Erosion of Workers Comp
Exposure Over the Past Several
Years
3
Workers Compensation Premium
Continues Its Sharp Decline
Net Written Premium
$ Billions
50
State Funds ($ B)
46.5
47.8
46.5
44.3
Private Carriers ($ B)
42.3
40
39.3
37.7
31.0 31.3
30
34.6 33.8
32.1
29.8 30.5 29.1
28.2
26.3
26.9 25.9
25.0
28.6
20
31.0 31.3 29.8 30.5
29.1
10
34.7
26.3 25.2
25.0 26.1
24.2 23.3
22.3
29.2
37.8 38.6 37.6
31.1
33.8
30.3 29.9
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010p
p Preliminary
Calendar Year
Source: 1990–2009 Private Carriers, Best's Aggregates & Averages; 2010p, NCCI
1996–2010p State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
State Funds available for 1996 and subsequent
Workers Comp Rate Changes,
2008:Q4 – 2011:Q2
(Percent
Change)
The Q2 2011 WC rate
change was the first
increase in many years
4%
2.6%
3%
2%
1%
0%
-1%
-2%
-1.6%
-3%
-4%
-4.0%
-5%
-6%
-3.7%
-4.6%
-3.4%
-4.6%
-5.4%
-5.5%
08:Q4
-3.7%
-3.9%
09:Q1
09:Q2
09:Q3
09:Q4
10:Q1
Source: Council of Insurance Agents and Brokers; Information Institute.
10:Q2
10:Q3
10:Q4
11:Q1
11:Q2
Number of Workers Covered Under Workers’
Compensation Programs, 1989-2009
140,000
10
9
8
120,000
7
6
5
4
80,000
3
2
60,000
1
0
40,000
Percent Change
Total Workers
(000)
100,000
-1
Total Workers
20,000
-2
Percent change
-3
-4
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
-5
89
0
Source: National Academy of Social Insurance.
6
Total Wages Covered Under Workers’
Compensation Programs, 1989-2009
$6,000
10
Total Wages
$5,500
Percent change
9
8
7
$4,500
6
$4,000
5
$3,500
4
3
$3,000
2
$2,500
1
$2,000
0
$1,500
-1
Percent Change
Total Wages ($ billions)
$5,000
-2
$1,000
-3
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
-5
91
$0
90
-4
89
$500
Source: National Academy of Social Insurance.
7
Private Industry Occupational Injuries and
Illnesses, 1987-2009
10
10
Number of Cases
Incident Rate
9
09
08
07
06
05
04
0
03
0
02
1
01
1
00
2
99
2
98
3
97
3
96
4
95
4
94
5
93
5
92
6
91
6
90
7
89
7
88
8
87
8
All cases (percent)
All cases (millions)
9
Source: National Academy of Social Insurance.
8
Number of Workers Covered by Workers’
Compensation, By State, 2008-2009
State
2008-2009
Percent change
State
2008-2009
Percent change
State
2008-2009
Percent change
AL
-5.8%
LA
-2.2%
OK
-8.0%
AK
-0.6%
ME
-3.6%
OR
-6.3%
AZ
-7.5%
MD
-3.4%
PA
-3.5%
AR
-3.5%
MA
-3.5%
RI
-4.6%
CA
-5.7%
MI
-7.6%
SC
-6.2%
CO
-4.9%
MN
-4.2%
SD
-2.2%
CT
-4.3%
MS
-4.7%
TN
-6.0%
DE
-4.9%
MO
-4.2%
TX
2.2%
DC
-2.0%
MT
-3.9%
UT
-5.4%
FL
-6.8%
NE
-2.5%
VT
-3.6%
GA
-6.2%
NV
-9.3%
VA
-3.8%
HI
-4.9%
NH
-3.8%
WA
-4.3%
ID
-6.2%
NJ
-4.2%
WV
-2.8%
IL
-5.0%
NM
-4.2%
WI
-4.9%
IN
-6.0%
NY
-3.1%
WY
-4.3%
IA
-3.1%
NC
-5.7%
KS
-4.4%
ND
-0.3%
Total
-4.0%
KY
-4.7%
OH
-5.7%
Source: National Academy of Social Insurance.
9
Total Wages Covered by Workers’
Compensation, By State, 2008-2009
State
2008-2009
Percent change
State
2008-2009
Percent change
State
2008-2009
Percent change
AL
-4.4%
LA
-1.8%
OK
-4.1%
AK
2.4%
ME
-2.8%
OR
-5.8%
AZ
-6.9%
MD
-1.8%
PA
-2.6%
AR
-1.4%
MA
-4.4%
RI
-3.9%
CA
-5.6%
MI
-8.9%
SC
-5.0%
CO
-4.5%
MN
-5.3%
SD
-0.7%
CT
-5.4%
MS
-3.9%
TN
-5.5%
DE
-4.6%
MO
-5.1%
TX
-3.6%
DC
-1.8%
MT
-2.7%
UT
-4.1%
FL
-6.0%
NE
-1.4%
VT
-2.5%
GA
-5.8%
NV
-10.0%
VA
-2.0%
HI
-3.7%
NH
-3.8%
WA
-2.5%
ID
-5.7%
NJ
-4.5%
WV
-0.4%
IL
-5.8%
NM
-2.8%
WI
-4.9%
IN
-6.4%
NY
-7.3%
WY
-6.2%
IA
-2.6%
NC
-5.6%
KS
-4.0%
ND
2.3%
Total
-4.7%
KY
-3.3%
OH
-5.5%
Source: National Academy of Social Insurance.
10
Workers’ Compensation Benefits and Costs
Per $100 of Covered Wages, 1980-2009
$2.5
2.18 2.16
2.13 2.17
2.04
$2.0
1.79
1.76
1.67
1.58
1.86
1.83
1.50 1.49
1.49
1.57
1.46
0.96 0.97
1.04 1.05 1.09
1.71 1.70 1.71
1.66
1.64
$1.5
$1.0
2.05
1.94
1.17
1.23
1.29
1.65 1.65
1.53
1.38 1.35 1.34 1.43
1.57
1.46
1.34 1.30
1.47
1.35
1.34
1.57
1.26
1.17 1.13 1.12
1.13 1.16 1.13 1.09
1.06 1.10
0.99 0.96 0.98 1.03
$0.5
$0.0
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Employer Costs
Benefits
Source: National Academy of Social Insurance.
11
Workers’ Compensation Medical and Cash
Benefits Per $100 of Covered Wages, 1980-2009
$1.2
0.99
0.94
$1.0
$0.8
0.96
0.89
0.87
0.82 0.84
0.78 0.80
0.81
0.76
0.71 0.73
0.68 0.68 0.70
0.68
$0.6
0.62
0.66
0.69
$0.4
0.34 0.34 0.36
0.39
0.43
0.47
0.65 0.63
0.60 0.60 0.61 0.61 0.61 0.59
0.66
0.57
$0.2
0.89
0.50
0.52
0.58
0.54
0.50 0.48 0.48 0.48
0.50 0.52
0.47
0.55 0.53
0.51
0.49 0.48
0.47 0.46 0.49
0.52
0.51
0.28 0.29
$0.0
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Medical Benefits
Cash Benefits
Source: National Academy of Social Insurance.
12
Labor Market Trends
Massive Job Losses Sapped the
Economy and WC Exposure;
Trend Improved in Early 2011 but
Is Now Weak
13
Unemployment and Underemployment
Rates: Stubbornly High in 2011
January 2000 through July 2011, Seasonally Adjusted (%)
18
Traditional Unemployment Rate U-3
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 16.1%
in July 2011
Unemployment + Underemployment Rate U-6
16
Recession
ended in
November
2001
14
12
Unemployment
kept rising for
19 more
months
Recession
began in
December
2007
Unemployment
fell to 9.1% in
June
10
Unemployment
peaked at 10.1%
in October 2009,
highest monthly
rate since 1983.
8
6
4
Jul
11
2
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Jan
10
Peak rate in the
last 30 years:
10.8% in
November December 1982
Jan
11
Stubbornly high unemployment and underemployment
will constrain payroll growth, which directly affects WC exposure
Source: US Bureau of Labor Statistics; Insurance Information Institute.
14
Monthly Change in Private Employment
(800)
(1,000)
144
229
16
62
75
-83
-14
65
97
23
213
65
127
42
15
79
Monthly Losses in
Dec. 08–Mar. 09 Were
the Largest in the
Post-WW II Period
-334
-452
-297
-215
-186
-262
(600)
-734
-667
-806
-707
-744
-649
(400)
-12
-85
-58
-161
-253
-230
-257
-347
-456
-547
(200)
-109
0
Private employers added jobs in
every month in 2010 for a total of
1.435 million for the year
154,000 private sector jobs
were created in July
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
200
186
400
51
61
117
143
112
193
128
167
94
261
219
241
99
80
154
January 2008 through July 2011* (Thousands)
Private Employers Added 2.368 million Jobs Since Jan. 2010 After
Having Shed 4.66 Million Jobs in 2009 and 3.81 Million in 2008 (State
and Local Governments Have Shed Hundreds of Thousands of Jobs
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Change in Number Employed
in Select Industries, June 2011 vs. June 2010
Thousands
600
400
396
343
257
Professional Business Services, Health
Care, and Trade, Transportation &
Utilities) were the job growth leaders in
the past year.
223
99
200
77
0
-27
-200
-61
-190
-400
-666
Government
Construction
Financial
Activities
Information
Mining &
Logging
Manufacturing
Education
Trade,
Transport. &
Utilities
Health Care &
Social Assist.
-800
Prof.
Business
Serv.
-600
Leisure &
Hospitality
-382
There is a great deal of variation in employment growth by industry,
indicating a very uneven and slow recovery
Sources: US Bureau of Labor Statistics “Employment Situation, June 2011”; Insurance Information Institute.
16
Monthly Change Employment*
-600
-800
-109
93
152
68
235
221
217
53
46
117
210
Monthly Losses in
Dec. 08–Mar. 09 Were
the Largest in the
Post-WW II Period
117,000
nonfarm jobs
were created
in July
Jan 08
Feb 08
Mar 08
Apr 08
May 08
Jun 08
Jul 08
Aug 08
Sep 08
Oct 08
Nov 08
Dec 08
Jan 09
Feb 09
Mar 09
Apr 09
May 09
Jun 09
Jul 09
Aug 09
Sep 09
Oct 09
Nov 09
Dec 09
Jan 10
Feb 10
Mar 10
Apr 10
May 10
Jun 10
Jul 10
Aug 10
Sep 10
Oct 10
Nov 10
Dec 10
Jan 11
Feb 11
Mar 11
Apr 11
May 11
Jun 11
Jul 11
-1,000
-175
-66
-400
-597
-681
-779
-726
-753
-528
-387
-515
-346
-212
-225
-224
-200
-72
-144
-122
-160
-137
-161
-128
-175
-321
-380
0
-41
-1
200
14
39
400
The job gain and loss figures in 2010 were
severely distorted by the hiring and termination of
temporary Census workers. In 2010, 1.178 million
nonfarm jobs were created.
64
600
208
313
432
January 2008 through July 2011* (Thousands)
Job Losses Since the Recession Began in Dec. 2007 Peaked at
8.4 Mill in Dec. 09; Stands at 6.2 Million Through March 2011;
13.5 Million People are Now Defined as Unemployed
*Estimate based on Reuters poll of economists.
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
17
8.3
8.5
8.5
8.8
8.8
9.1
9.2
9.2
9.2
9.3
9.4
9.4
9.5
9.6
9.8
9.9
9.9
10.3
10.4
10.5
10.5
10.6
9.9
10
In June, 28 states and the District of
Columbia reported over-the-month
unemployment rate increases, 8 had
decreases, and 14 had no change.
10.8
Unemployment Rate (%)
12
11.8
14
12.4
Unemployment Rates by State, June 2011:
Highest 25 States*
8
6
The unemployment rate in
the US was 9.2% in June
4
2
0
NV CA RI FL MI SC DC MS AL GA NC TN KY NJ ID OR AZ IL WA US CT MO OH CO WV IN
*Provisional figures for June 2011, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
18
Unemployment Rates By State, June 2011:
Lowest 25 States*
4.1
4.8
4.9
5.3
5.5
5.9
6.0
6.0
6.8
6.6
6.0
6
7.0
7.4
7.5
7.5
7.6
7.6
7.6
7.8
7.8
8.0
8.1
8
8.0
4
3.2
Unemployment Rate (%)
8.2
10
6.7
In June, 28 states and the District of
Columbia reported over-the-month
unemployment rate increases, 8 had
decreases, and 14 had no change.
2
0
TX AR DE NY LA ME MA PA WI AK MT UT MD NM MN KS HI IA VA WY VT OK NH SD NE ND
*Provisional figures for June 2011, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
19
Labor Underutilization:
Broader than Just Unemployment
16.1%
16.2%
16.0%
15.9%
15.7%
16.1%
16.7%
17.0%
17.0%
17.1%
16.7%
16.5%
16.5%
16.6%
17.1%
16.9%
16.8%
16.5%
17.3%
17.2%
17.5%
17.0%
15.9%
16%
16.8%
17%
16.3%
16.4%
18%
16.5%
% of Labor Force
15%
14%
12%
11.2%
13%
11%
Se
p
0
M 8
ay
0
Ju 9
n
09
Ju
l0
Au 9
g
Se 09
p
0
O 9
ct
0
N 9
ov
D 09
ec
0
Ja 9
n
1
Fe 0
b
1
M 0
ar
1
Ap 0
r
M 10
ay
1
Ju 0
n
10
Ju
l1
Au 0
g
Se 10
p
1
O 0
ct
1
N 0
ov
D 10
ec
1
Ja 0
n
1
Fe 1
b
1
M 1
ar
1
Ap 1
r
M 11
ay
1
Ju 1
n
11
Ju
l1
1
10%
Marginally Attached and Unemployed Persons Account for 16.1% of the
Labor Force in July 2011 (1 Out Every 6.2 People). Unemployment Rate
Alone was 9.2%. Underutilization Shows a Broader Impact on WC and
Other Commercial Exposures
NOTE: Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and
are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached,
have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those
who want and are available for full-time work but have had to settle for a part-time schedule.
Source: US Bureau of Labor Statistics; Insurance Information Institute.
20
US Unemployment Rate
8.0%
4.9%
08:Q1
4.6%
07:Q3
4.8%
4.5%
07:Q2
07:Q4
4.5%
5.0%
07:Q1
6.0%
5.4%
7.0%
6.1%
8.5%
8.7%
8.8%
8.9%
9.1%
9.1%
9.6%
9.6%
9.6%
10.0%
9.7%
9.0%
Unemployment
peaked at 10% in
late 2009.
8.9%
9.0%
8.1%
10.0%
Jobless figures
have been revised
upwards for 2011/12
6.9%
11.0%
9.3%
Rising
unemployment
eroded payrolls
and workers comp’s
exposure base.
9.6%
2007:Q1 to 2012:Q4F*
Unemployment
forecasts remain
stubbornly high
through 2011, but still
imply millions of new
jobs will created.
*
= actual;
= forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (8/11); Insurance Information Institute
12:Q4
12:Q3
12:Q2
12:Q1
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
09:Q3
09:Q2
09:Q1
08:Q4
08:Q3
08:Q2
4.0%
21
Workers Compensation
and the Economy
Workers Comp Exposure and
Performance is Intimately Linked to
the Economy and Labor Market
22
2%
0.6%
4%
1.1%
1.8%
2.5%
3.6%
3.1%
2.7%
0.9%
3.2%
2.3%
2.9%
4.1%
6%
1.6%
The Q4:2008 decline was
the steepest since the
Q1:1982 drop of 6.8%
Real GDP Growth (%)
5.0%
3.9%
3.8%
2.5%
2.3%
0.4%
1.3%
2.2%
2.5%
2.4%
2.6%
2.8%
2.9%
US Real GDP Growth*
-0.7%
12:4Q
12:3Q
12:2Q
12:1Q
11:4Q
11:3Q
11:2Q
11:1Q
10:4Q
10:3Q
10:1Q
09:4Q
09:3Q
09:2Q
10:2Q
2011 got off to a sluggish
start, but growth is expected
to accelerate in the remainder
of the year. This is a major
positive for insurance demand
and exposure growth.
-4.9%
09:1Q
08:4Q-6.8%
-4.0%
08:3Q
08:2Q
08:1Q
07:4Q
07:3Q
07:2Q
07:1Q
2006
2005
2004
2000
-8%
2003
-6%
2002
-4%
Recession began in Dec.
2007. Economic toll of credit
crunch, housing slump,
labor market contraction has
been severe but modest
recovery is underway
2001
-2%
-0.7%
0%
Demand for Insurance Continues To Be Impacted by Sluggish Economic
Conditions, but the Benefits of Even Slow Growth Will Compound and
Gradually Benefit the Economy Broadly
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 8/11; Insurance Information Institute.
23
Length of US Business Cycles,
1929–Present*
Duration (Months)
120
110
100
90
80
70
60
50
40
30
20
10
0
Contraction
Length of Expansions
Greatly Exceeds
Contractions
Expansion Following
106
92
Average Duration**
Recession = 10.4 Mos
Expansion = 60.5 Mos
80
The “Great
Recession”
120
lasted 19
months, longest
since Great
Depression
73
58
50
45
43
39
37
36
26
24
13
8
11
10
8
10
11
16
6
12
19
16
8
8
Aug May Feb Nov
Jul
Aug Apr Dec Nov Jan
Jul
Jul
Mar Dec
1929 1937 1945 1948 1953 1957 1960 1969 1973 1980 1981 1990 2001 2007
Month Recession Started
*Through July 2011. Most recent recession began Dec. 2007 and ended June 2009.
** Post-WW II period through end of most recent expansion.
Sources: National Bureau of Economic Research; Insurance Information Institute.
24
2011 Financial Overview
State Economic Growth Varied in 2010
Hard hit Midwest and
Northeast states finally
entering recovery in 2010
Texas had one of the stronger
economies in 2010 and has
generally outperformed during
the economic downturn
25
Direct Premiums Written: All P/C Lines
Percent Change by State, 2005-2010
Top 25 States
44.8
45
North Dakota is the growth
juggernaut of the P/C
insurance industry—too
bad nobody lives there…
35
30
3.0
AL
1.1
3.1
WA
TN
3.7
ID
1.2
3.8
NC
AK
4.7
AR
1.5
5.2
UT
WI
5.4
6.8
SC
LA
SD
0
ND
5
DC
7.1
8.1
MS
NM
8.1
DE
11.9
MT
9.1
12.3
TX
10
NE
12.4
13.9
KS
IA
14.2
15
WV
16.6
OK
20
17.3
19.8
25
WY
25.4
Pecent change (%)
40
Sources: SNL Financial LC.; Insurance Information Institute.
27
Direct Premiums Written: All P/C Lines
Percent Change by State, 2005-2010
Bottom 25 States
Sources: SNL Financial LC; Insurance Information Institute.
-15.5
-13.5
NV
CA
-8.3
AZ
-14.2
-8.2
MA
ME
HI
NJ
CO
RI
OH
VT
CT
IL
MI
-8
NH
-5.8
-4.8
-4.7
-4.5
-4.1
-3.6
-3.4
-2.9
-2.8
FL
OR
VA
MN
GA
NY
IN
KY
-20
MO
-15
PA
States with the poorest
performing economies also
produced the most negative
net change in premiums of
the past 5 years
US
-10
-5.7
US Direct Premiums
Written declined by
1.6% between 2005
and 2010
-2.5
-1.7
-1.6
-1.4
-0.8
-0.5
-0.3
-0.1
-5
MD
Pecent change (%)
0
0.1
0.6
0.7
5
28
Wage and Salary Disbursements (Payroll Base) vs.
Workers Comp Net Written Premiums
Payroll Base*
$Billions
WC NWP
$Billions
Wage & Salary Disbursements
WC NPW
$7,000
7/90-3/91
$6,000
$5,000
$4,000
$3,000
$50
12/07-6/09
3/01-11/01
$45
WC premium
volume dropped
two years before
the recession began
$40
WC net premiums
written were down
$14B or 29.3% to
$33.8B in 2010 after
peaking at $47.8B
in 2005
$2,000
$35
$30
$25
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
29% of NPW has been eroded away by the soft market and weak economy
*Private employment; Shaded areas indicate recessions.
Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
29
Direct Premiums Written: Worker’s Comp
Percent Change by State, 2005-2010*
34.45,807.1
-21.4
-21.7
MN
-17.8
VA
AR
-16.9
CT
-19.8
-15.9
AL
SC
-15.3
NC
-10.9
NJ
-14.7
-10.9
NM
MD
-10.3
IL
-13.0
-10.0
MS
NE
-9.3
PA
-7.3
WI
NY
KS
IA
ID
-3.7
9.0
SD
4.6
10.2
14.2
LA
1.4
Only 7 (small) states
showed growth in workers
comp premium volume
between 2005 and 2010
23.1
MT
40
35
30
25
20
15
10
5
0
-5
-10
-15
-20
-25
-30
-35
OK
Pecent change (%)
Top 25 States
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
30
Direct Premiums Written: Worker’s Comp
Percent Change by State, 2005-2010*
Bottom 25 States
0
-57.7
-51.2
CA
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
FL
-50.7
HI
-45.4
-36.1
CO
NV
-34.7
RI
-42.7
-33.8
UT
US
VT
TN
MA
DC
OR
NH
IN
KY
GA
AZ
-60
DE
-32.6
MI
-30.1
AK
-32.5
-29.0
-28.7
-28.3
-28.1
-26.9
-26.8
-25.3
-25.2
-25.2
-25.0
-24.2
-23.7
States with the poorest
performing economies also
produced the most negative
net change in premiums of
the past 5 years
-50
-70
TX
-40
ME
-30
-22.6
Pecent change (%)
-20
MO
Workers Comp DPW
plunged 28.7% from
between 2005 and 2010
-10
31
Crisis-Driven Exposure
Drivers in Workers Comp
Economic Obstacles and
Opportunities to Growth
34
0.9
0.7
0.5
The plunge and lack of recovery in
homebuilding and in construction in general is
holding back payroll exposure growth
0.55
0.59
0.59
1.1
0.91
1.20
1.33
1.43
1.50
1.3
1.20
1.29
1.5
1.19
1.01
1.7
New home
starts plunged
72% from
2005-2009; A
net annual
decline of 1.49
million units,
lowest since
records began
in 1959
0.76
1.9
1.46
1.35
1.48
1.47
1.62
1.64
1.57
1.60
1.71
2.1
1.36
(Millions of Units)
1.85
1.96
2.07
1.80
New Private Housing Starts, 1990-2016F
Job growth,
improved credit
market conditions
and demographics
will eventually boost
home construction
0.3
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11F12F13F14F15F16F
Little Exposure Growth Likely for Homeowners Insurers Until 2013.
Also Affects Commercial Insurers with Construction Risk Exposure, Surety
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/10 and 7/11); Insurance Information Institute.
35
Recovery in Capacity Utilization is a
Positive Sign for Commercial Exposures
“Full Capacity”
Percent of
Industrial Capacity
The US operated at
76.7% of industrial
capacity in Jun. 2011,
above the June 2009
low of 68.3%
82%
Hurricane
Katrina
80%
78%
76%
The closer the economy is
to operating at “full
capacity,” the greater the
inflationary pressure
74%
72%
70%
March 2001November 2001
recession
68%
Source: Federal Reserve Board statistical releases at http://www.federalreserve.gov/releases/g17/Current/default.htm.
37
Jun 11
Dec 10
Mar 11
Jun 10
Sep 10
Dec 09
Mar 10
Jun 09
Sep 09
Dec 08
Mar 09
Jun 08
Sep 08
Mar 08
Sep 07
Dec 07
Mar 07
Jun 07
Sep 06
Dec 06
Mar 06
Jun 06
Sep 05
Dec 05
Mar 05
Jun 05
Sep 04
Dec 04
Jun 04
Dec 03
Mar 04
Jun 03
Sep 03
Dec 02
Mar 03
Jun 02
Sep 02
Dec 01
Mar 02
Jun 01
Sep 01
Mar 01
66%
December 2007June 2009 Recession
Business Bankruptcy Filings,
1980-2011:Q1
90,000
80,000
50,000
40,000
30,000
20,000
10,000
0
1980-82
1980-87
1990-91
2000-01
2006-09
58.6%
88.7%
10.3%
13.0%
208.9%*
2010 bankruptcies totaled 56,282, down 7.5%
from 60,837 in 2009—which were up 40%
from 2008 and the most since 1993. 2011:Q1
filings are down 14.4% from 2010:Q1.
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
60,000
43,694
48,125
70,000
69,300
62,436
64,004
71,277
81,235
82,446
63,853
63,235
64,853
71,549
70,643
62,304
52,374
51,959
53,549
54,027
44,367
37,884
35,472
40,099
38,540
35,037
34,317
39,201
19,695
28,322
43,546
60,837
56,282
12,376
% Change Surrounding
Recessions
Significant Exposure Implications for All Commercial Lines as
Business Bankruptcies Begin to Decline
Sources: American Bankruptcy Institute at
http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633 ;
Insurance Information Institute
39
Private Sector Business Starts,
1993:Q2 – 2010:Q3*
220
210
344,000 new business starts were
recorded through the first half of 2010,
which was likely the slowest year for
new business starts since 1993.
170
160
184
172
176
169
180
186
174
180
175
190
186
200
182
192
188
187
189
186
190
194
191
199
204
202
195
196
196
206
206
201
192
198
206
206
203
211
205
212
200
205
204
204
197
203
209
201
203
192
192
193
201
204
202
210
212
209
216
220
223
220
220
210
221
212
204
218
209
207
207
199
191
193
230
Business Starts
2006: 872,000
2007: 843,000
2008: 790,000
2009: 697,000
2010:Q3 526,000
172
172
(Thousands)
150
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
Business Starts Were Down Nearly 20% in the Recession,
Holding Back Most Types of Commercial Insurance Exposure
* Data through September 30, 2010 are the latest available as of July 25, 2011; Seasonally adjusted
Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.
40
11 Industries for the Next 10 Years:
Insurance Solutions Needed
Health Care
Health Sciences
Energy (Traditional)
Alternative Energy
Agriculture/Agribusiness
Natural Resources
Environmental
Many
industries are
poised for
growth, but
many insurers
do not write in
these
economic
segments
Technology (incl. Biotechnology)
Light Manufacturing
Export-Oriented Industries
Shipping (Rail, Marine, Trucking)
41
Percentage Change in Employment in
Select Industries, June 2011 vs. June 2010
Percentage Change
Mining and Logging activities were
the job growth leaders over the
past year, in percentage terms
2.4%
2.1%
1.0%
0.9%
-0.8% -1.0%
Construction
Government
Leisure &
Hospitality
Information
Finanacial
Activities
Manufacturing
Trade,
Transport. &
Util
Health &
Social Assist.
-2.8% -2.9% -3.3%
Prof. &
Business
Serv.
Education
Mining &
Logging
12% 10.9%
10%
7.6%
8%
6%
4%
2%
0%
-2%
-4%
-6%
There is a great deal of variation in employment growth by industry,
indicating a very uneven and slow recovery
Sources: US Bureau of Labor Statistics “Employment Situation, June 2011”; Insurance Information Institute.
42
Change in Number Employed
in Select Industries, June 2011 vs. June 2010
Thousands
600
400
396
343
257
Professional Business Services, Health
Care, and Trade, Transportation &
Utilities) were the job growth leaders in
the past year.
223
99
200
77
0
-27
-200
-61
-190
-400
-666
Government
Construction
Financial
Activities
Information
Mining &
Logging
Manufacturing
Education
Trade,
Transport. &
Utilities
Health Care &
Social Assist.
-800
Prof.
Business
Serv.
-600
Leisure &
Hospitality
-382
There is a great deal of variation in employment growth by industry,
indicating a very uneven and slow recovery
Sources: US Bureau of Labor Statistics “Employment Situation, June 2011”; Insurance Information Institute.
43
Percentage Change in Employment in
Select Sub-Industries, June 2011 vs. June 2010
% Change
-2.9%
1.9%
1.7%
Health Care-Nursing &
Residential
2.2%
-2.9%
Transport-Water
Transport-Truck
Mfg--Wood
Products\
-6.2%
Construction
of Buildings
Logging
-7.2%
6.1%
Health Care
-3.9%
6.0%
Constr
uction-Heavy &
Mfg-Primary
Metals
Mfg-Fabricated
Metals
7.8%
Oil & Gas
Extraction
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
Oil and Gas
Extraction was
among the fastest
growing industry
sub-segments
over the past
year, in % terms
There is a great deal of variation in employment growth by industry,
indicating a very uneven and slow recovery
Sources: US Bureau of Labor Statistics “Employment Situation, June 2011”; Insurance Information Institute.
44
Change in Number Employed in
Select Sub-Industries, June 2011 vs. June 2010
Thousands
Industries related to
natural resource
extraction,
processing and
manufacturing are
doing well, along
with health care
200
150
100
50
162
79
54
27
22
12
0
Health Care:
Abulatory
Serv.
Health Care-Nursing &
Residential
-22
Transport-Water
-2
Transport-Truck
Construction
of Buildings
Logging
Oil & Gas
Extraction
(100)
-49
-26
Mfg--Wood
Products\
(50)
Constr
uction-Heavy &
Mfg-Primary
Metals
Mfg-Fabricated
Metals
-4
There is a great deal of variation in employment growth by industry,
indicating a very uneven and slow recovery
Sources: US Bureau of Labor Statistics “Employment Situation, June 2011”; Insurance Information Institute.
45
Where Will the Growth in WC
Exposure Come From?
Industry and Occupation
Growth Analysis
46
Occupations with Largest Numerical Growth,
2008–2018: Health, Services Dominate
Dollar growth in WC exposures should grow the most (at current
rate levels) in the health and services industries
Occupations
Registered nurses
Home health aides
Customer service representatives
Number
of
new jobs
(in thousands)
581.5
460.9
399.5
Percent change
22
50
18
394.3
15
16,430
Short-term on-the-job training
375.8
374.7
358.7
279.4
46
8
12
22
19,180
20,510
25,320
59,430
Short-term on-the-job training
Short-term on-the-job training
Short-term on-the-job training
Bachelor's degree
Nursing aides, orderlies, and attendants
276.0
19
23,850
Postsecondary vocational award
Postsecondary teachers
Construction laborers
256.9
255.9
15
20
58,830
28,520
Doctoral degree
Moderate-term on-the-job training
Elementary school teachers, except
special education
244.2
16
49,330
Bachelor's degree
Truck drivers, heavy and tractor-trailer
232.9
13
37,270
Short-term on-the-job training
217.1
18
23,150
Short-term on-the-job training
212.4
10
32,510
Moderate-term on-the-job training
Executive secretaries and administrative
assistants
204.4
13
40,030
Work experience in a related occupation
Management analysts
178.3
24
73,570
Bachelor's or higher degree, plus work
experience
175.1
34
85,430
Bachelor's degree
24,550
38,940
Short-term on-the-job training
Long-term on-the-job training
Combined food preparation and serving
workers, including fast food
Personal and home care aides
Retail salespersons
Office clerks, general
Accountants and auditors
Landscaping and groundskeeping
workers
Bookkeeping, accounting, and auditing
clerks
Computer software engineers,
applications
Receptionists and information clerks
Carpenters
SOURCE: BLS Occupational Employment Statistics
172.9
15
165.4
13
and Division of Occupational Outlook
Wages (May 2008 median)
Education/training category
$ 62,450
Associate degree
20,460
Short-term on-the-job training
29,860
Moderate-term on-the-job training
Sources: US Bureau of Labor Statistics: Occupational Outlook Handbook, 2010-2011 Edition; Insurance Information Institute
48
Numeric Change in Wage and Salary Employment
in Service-Providing Industries: 2008-2018P
(Thousands)
4,017
Health Care and Social Assistance
2,657
Professional, Scientific, Tech. Srvs.
1,683
Education Services
1,431
Administration, Support, Waste Mgmt & Removal
838
Accomodation & Food Services
788
Government
704
Other Services (excl. Govt.)
654
Retail Trade
446
Transportation and Warehousing
Finance & Insurance
322
Arts, Entertainment & Recreation
304
Wholesale Trade
256
Real Estate, Rental & Leasing
236
Information
118
Mgmt. of Companies & Enterprises
102
0
500
Health, Science and
Education will be
important sources of
exposure growth for WC
insurers this decade
1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500
Sources: US Bureau of Labor Statistics: Occupational Outlook Handbook, 2010-2011 Edition; Insurance Information Institute
50
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
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