Granular Pricing of Workers’ Compensation Risk in Excess Layers

The net written premiums for the workers’ compensation industry, and its share in the overall commercial lines of business, have steadily declined between 2007 and 2010. Net written premiums have plummeted 33% from $48 billion at year-end 2006 to $32 at year-end 2010. In 2011, the industry-wide loss ratio for workers’ compensation insurance in the U.S. increased to 118.1%. This is the highest level in more than a decade. The combined ratio for workers’ compensation has increased steadily from a value of 100% in 2006 to 119% in 2011 (see Figure 1, on next page). These numbers are influencing insurance carriers to look for creative pricing methodologies.