Future of Workers’ Compensation

The workers’ compensation market seems to be on a positive trajectory once again as reported by the National Council on Compensation Insurance (NCCI). Chief Actuary Donna Glenn mentioned in an interview with Insurance Journal that the current trends are optimistic, suggesting that there is no immediate reversal to these positive developments.

NCCI’s latest report from 2024 showed a moderate increase of only 1% in premiums across the workers’ comp market in 2023. However, it remained the most profitable segment in the property/casualty market, boasting a combined ratio of 86. This marked the seventh consecutive year where the line maintained a combined ratio below 90, according to NCCI’s statement. Despite these positive findings, some specialists in workers’ comp are questioning what lies ahead for the line and when the market might shift.

Patrick Edwards, RPS’s area senior vice president and workers’ comp practice leader, expressed skepticism about the line’s current favorable results. He highlighted the challenges faced by carriers with poor loss ratios and emphasized the importance of considering upcoming reports to gain a better understanding of the market. Edwards explained that there might be misleading information due to the way claims reserve releases are managed, creating a discrepancy between accident year statistics and reserve releases.

In terms of reserve redundancy, underwriters observed that although the workers’ comp segment still retains significant reserve redundancy, recent reserve releases could be concealing an underlying deterioration in accident year combined ratios. The entry of new capacity into this space, including insurtechs, has added pressure on rates and intensified competition. This influx of capacity has exposed some legacy workers’ comp carriers to higher accident year loss ratios in this competitive landscape.

Despite these challenges, the overall workers’ comp market is functioning effectively and adapting to adversities. The market remains highly competitive with ample capacity available, as carriers aim to write more business within this product line. The ongoing issue of claims versus rates has been a point of focus for NCCI, which has observed a consistent decline in claim frequency over the past 20 years, especially in lost-time claim frequency, which saw an 8% decrease in 2023.

In conclusion, the workers’ compensation market is navigating through a period of notable developments and transformations. Despite the challenges posed by reserve redundancies and fluctuations in accident year loss ratios, the market continues to demonstrate resiliency and adaptability. The focus remains on understanding the intricate dynamics between claims, rates, and capacity to ensure long-term sustainability and growth within the workers’ comp segment.