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Residual Market Results & Burden

The burden measures to what extent insurance companies who participate in the assigned risk pool must subsidize the losses in the assigned risk market.

Burden
The residual market burden is another way at looking at the underwriting result (gain or loss) in the residual market. The burden measures to what extent insurance companies who participate in the assigned risk pool must subsidize the losses in the assigned risk market.

In very general terms, this means that for all employers in the assigned risk plan for a given year, the premium collected was not enough to pay losses. So, the insurance companies must all chip in (reinsure) and make up the difference. In Indiana, all insurance companies must participate in the assigned risk pool. Currently, Indiana is part of the National Workers Compensation Reinsurance Pool (NWCRP).

For example, if the residual market burden is 10%, that means an insurance company must give $10 to the assigned risk pool for every $100 it earns in regular market premium.

It is a reasonable goal for the assigned risk market to break even, meaning enough premium is charged to pay for losses. Then the burden would be 0%.

In more technical terms, the residual market burden represents a ratio of underwriting loss, including investment income, per $100 of regular market premium. It provides a measure of the "burden" that the residual market creates on the regular or voluntary market.

Here's another perspective on the residual market burden: "The workers compensation insurance industry is one of the few industries in which those who succeed are required to assume the burden of the less successful through residual market and guaranty fund obligations."


Sources for Reporting Results
1. NCCI has State Activity Reports on its website (Home > Residual Markets > Publications Reports > Residual Market State Activity Reports).
 
2. NCCI produces "Residual Market Quarterly Results" on its website (Home > Residual Markets > Reports, Results and Publications > Residual Market Quarterly Results. An NCCI account login and password may be required for this report.

The latest is report "Residual Market Projected Operating Gain (Loss) as a Percentage of the Participation Base as of 09/30/2016". The report defines "underwriting results" as the policy year pool operating gain (loss) expressed as a percentage of the direct voluntary market calendar year assessment base. The results can be extremely variable due to the newness of data in the most recent years. A negative number means a loss and a positive number means a gain.

The report defines "operating loss" equals earned premium minus incurred losses minus servicing carrier allowance and other pool expenses plus pool interest income on cash flow.

Here's a summary of the underwriting results from Exhibit 2, page 3:
 
Pol Year
36 States
Indiana*
2000
-0.7%
0.5%
2001
-0.9%
1.5%
2002
-1.6%
0.8%
2003
-1.1%
1.1%
2004
-0.7%
1.6%
2005
-0.5%
-0.1%
2006
-0.4%
1.1%
2007
-0.8%
0.7%
2008
-0.7%
0.2%
2009
-0.4%
0.4%
2010
-0.5%
-1.8%
2011
-0.6%
-0.3%
2012
-0.4%
 0.8% 
2013
-0.2%
 0.8% 
2014
-0.2%
1.0%
2015
-0.3%
0.7%%
  
*Indiana 2005-2015 policy years: Joanna Davis, CIS email 02/07/17 as of 09/30/2016. To be consistent with NCCI report, Indiana Pool results are net of reinsurance and do not include investment income.


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The material in this document has been prepared and shared for informational purposes only and should not be relied upon as legal advice on any particular situation.