Berkley goes contrarian on workers comp: the time bomb is ticking

US workers compensation may be a time bomb with a slow-burning fuse to a powder keg of pending medical inflation, top brass at US P&C insurance group WR Berkley believe. 

“There is a pinch point that exists and that is going to bubble over when it comes to medical costs,” CEO Robert Berkley told equity market analysts at an industry event hosted by Bank of America. 

Health care providers are hemmed in by three-year billing schedules with payers in what Berkley calls a “broken economic model” and various state regulations and schedules won’t shield payers or insurers when the time comes with medical costs at 50% of the workers comp bill.  

“Ultimately, every payer.... is going to have to adjust to the new costs in a broken economic model that those providers are struggling with.”

Trends on the E&S market, where Berkley takes the vast bulk of its business, suggest that Berkley is somewhat isolated in the view. 

The discipline from admitted market players that has kept E&S flows strong “will likely remain intact for the foreseeable future” for the broader market but “there are parts of the market where hat discipline is not what it once was,” he said. Workers comp has joined the much-maligned professional liability lines in that category, Berkly said. 

Despite current margins in workers comp and industry faith in state regulations and schedules,  Berkley will keep the line at a healthy arm’s length. 

“I think it is going to prove in hindsight, that if my colleagues and I are guilty of anything, it is that we were early,” Berkley said. “I don’t think it is going to be that we were wrong.”

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