Workers’ Compensation State of Risk

Workers’ compensation provides essential coverage, and in many instances, laws require employers to carry it. Additionally, workers’ compensation has been the most profitable property and casualty (P&C) line of business in recent years. The National Council on Compensation Insurance (NCCI) reports six straight years of combined ratios under 90 and nine consecutive years of underwriting gains.

Workers’ Compensation Statistics

The Insurance Information Institute (III) finds that P&C insurance as a whole has comparatively struggled with underwriting profitability due to rising replacement cost inflation on personal and commercial auto insurance. The III and Milliman report that the net combined ratio of the P&C industry was 102.4 in 2022.

Individually, workers’ compensation saw an 11.2% increase in net written premiums in 2022, according to the NCCI. This outpaced the 8.4% increase in the overall industry. The NCCI also reveals that the insurance line’s direct premiums rose 3.1% for private carriers between 2019 and 2022 and that its net combined ratio has been under 100 since 2014. The workers’ compensation net combined ratio as of the end of 2022 was 87.4 (including state funds), according to the III and Millman. In 2021 and 2022, workers’ compensation achieved the lowest net combined ratio compared to other major product lines, as reported by the chief officer for the III.

Furthermore, the III states that workers’ compensation has benefited from a generally strong economy and strong payroll growth. It predicts that upward pressure on payrolls will continue even if the tight labor market relaxes.

Workers’ Compensation Claims

The amount of claims is a major cost driver in the workers’ compensation line. The III reveals that claim frequency has been low and generally declining due in large part to improved workplace safety and the increased use of automation.

However, medical and indemnity severity have increased by around 60% over the past 20 years, according to the NCCI. Reasons for this include an aging workforce who may need more recovery time or may be at a heightened risk of comorbidities, rising medical costs and increased wages. Younger workers with less experience may also be more susceptible to accidents leading to severe injuries. In 2022, indemnity severity increased by 6%, while medical severity rose by 5%.

Looking Ahead

The III indicates that current trends bode well for workers’ compensation, but the industry must recognize and respond to emerging trends that may impact this line of coverage (e.g., acceptance of remote work, mental wellness) as stakeholder expectations continually evolve.

Article Published By: Zywave, Inc.