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March 09, 2001
Workers' Comp Insurers Suffer 86 Percent Profit Decline
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nation's workers' compensation insurers suffered an 86 percent decline in profits, to $144 million during the first nine months of 2000 from a $1 billion peak during the same period in 1998.

Weiss Ratings, Inc. reports this is a much more severe decline than the 6 percent drop in overall profits experienced by the property and casualty insurance industry during the same time period.

Moreover, the failure rate among workers' comp insurers in 2000 was 12 times higher than the failure rate of all other property and casualty insurers combined.

Among workers' comp insurers, the failure rate was 7.7 percent. In contrast, among property and casualty insurers of all other categories, the failure rate in 2000 was only 0.6 percent.

"A common reason for these failures is inadequate policy reserves to cover the rising losses; to avoid failure, companies often resort to large premium increases to help shore up reserves," said Martin D. Weiss, chairman of Weiss Ratings, which conducted the research. "Consequently, buyers of workers' comp can expect to see double-digit rate increases for the next few years."

"In the 1990s, workers' comp insurers severely under priced policies and loosened underwriting standards," Weiss said. "As with any type of insurance, this laxity eventually catches up with a company and becomes a serious drain on profits."
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