What Happens When Insurance Companies Forget How To Underwrite Workers Compensation

We’ve seen it happen before. We’ll see it happen again. I’m talking about the results, the effects, the left overs when a workers compensation insurance company forgets how to underwrite workers compensation.

Insurance companies today rely not so much on their field agents to do a good job of bringing quality risks to their doorstep as much as on their own internal ability to set a series of rules that govern the acceptability or unacceptability of a certain type of risk. It sometimes seems that they have given up on the idea of “best in class” and have traded that for “meets our guides.”

Insurance companies are so driven by statistical predictive modeling that they often forget the basics. That choosing an account to provide coverage on has evolved into a “no-brainer we’ll accept it or not” attitude. Forget the idea of seeking profitable well organized well managed employers and substitute that well, “it falls within our target class.”

But what happens when their model falls short? What happens when measured results start to slide?

Some of the tell tale signs that an insurance company is having problems with their workers compensation book of business are:

  • Restrictions on previously accepted classes of business – A bit of a knee jerk reaction that occurs when an insurance company realizes their workers compensation business is not performing as it had in the past.
  • A rush to fix the problem – Problem is that they are often confused about what’s going on, what’s caused the problem and how to go about making the corrections.
  • Quick rate adjustments – “It’s a quick fix we need so let’s raise our rates!” Now there’s a good idea, if you plan on running off your remaining good, profitable business!
  • Incorrect identification of a perceived problem – Insurance companies are statistical monsters! They often will identify a single issue and tag that as the reason for poor performance results. For example, placing blame on the smaller employer with few workers because those accounts do not generate enough premium volume to support the claims that occur.
  • A quick reversion to reliance on underwriting staff – And here’s a real problem! Many insurance companies have supplanted their underwriting staff with reliance on their statistical modeling. While some companies still maintain active underwriters on the larger more complicated accounts, the smaller accounts are designed to fly through underwriting, if they meet their modeling guides. In other words, it’s automated!

Here’s the real problem. Insurance companies are monsters. They are large, they must rely on long term planning. They must be able to look into the future and be able to predict what the changing workers compensation landscape will look like in 5 and 10 years. It’s a daunting job. All insurance companies go through it and when results are not what they’ve predicted the natural tendency is to “fix the problem.”

Some insurance companies have moved away from training underwriters. They’ve traded the traditional underwriting roles for those more in the realm of business analyst. The traditional lines of marketing and underwriting have become blurred. Today’s belief is one of generating new business  where they rely on their system to have identified classes of business that will bring bottom line profitability.

Insurance companies, those who are insurance companies in the traditional sense, know the value of being able to underwrite accounts. They have invested time and money in their underwriting staff. They have committed to train their new people in traditional underwriting roles.

The blending of traditional and modern roles can be found in those insurance companies who’ve planned well for the future. It truly takes both traditional underwriting techniques and statistical modeling to move successfully in the future world of workers compensation!

Hope this helps you out and thanks for reading!