Denver, CO – Valen Analytics, a provider of proprietary data, analytics and predictive modeling to help all insurance carriers manage and drive underwriting profitability, has expanded on its findings from its Commercial Lines Outlook Report, released in September, to showcase how workers’ compensation is at risk for market share consolidation. Valen points to recent statistics from rating agency A.M. Best to show that workers’ compensation is on the verge of mirroring personal lines from an overall performance perspective. As workers’ compensation continues to improve with the adoption of new tools and analytics, market share consolidation – due to increasingly sophisticated pricing strategies amongst carriers – is a trend to monitor in 2014.
The latest data from A.M. Best reveals that 56 percent of the workers’ compensation market is performing better than the industry average combined ratio of 110.4. That number is comprised of 122 carriers, 11 of which are recognized as the “top 20” workers’ compensation carriers based on direct written premium. A deeper dive shows that 12 percent of the market– representing just a small handful of companies – is only .1 to .6 percent away from performing better than average. If these companies improve their performance even slightly, the percentage of workers’ compensation carriers performing better than average increases from 56 to 68 percent. This aligns closely with the 69 percent of personal lines carriers that perform better than average in both auto and homeowners.
“For workers’ compensation, performing at an ‘average’ rate is no longer sufficient, and how far carriers stand above or below the average becomes more important than ever,” says Valen CEO and President Dax Craig. “The numbers suggest that more carriers are leveraging better tools and information to improve pricing strategies and ultimately performance. Those who aren’t are at a true disadvantage, and losing profitable market share becomes a real threat.”
As Valen’s Outlook Report determined, market share consolidation is a significant consideration for the worker’s compensation industry, and the way carriers grow profitably becomes a significant question leading into 2014. Pricing becomes key: carriers with superior tools can identify the best risks and turn away bad business, while competitors without sophisticated pricing methodologies suffer from adverse selection.
In a recent study from consulting firm Accenture, which surveyed over 550 commercial lines underwriters, 72 percent said that maintaining underwriting and pricing discipline was a top challenge. Fifty percent confirmed a need for more access to intuitive tools that can place information at their fingertips the moment a decision needs to be made.
Accenture goes on to report that the use of predictive models for pricing and risk evaluation, along with increasing the use of external data, will become even bigger market differentiators as carriers invest significantly to take the next leap forward.
Next, Valen will release a Personal Lines Outlook Report in Q1 2014, covering the shifting market dynamics that carriers are facing. Previous reports can be found online at www.valen.com.