2021 Workers' comp insurance market update
Workers’ compensation premiums are falling as workplaces become safer.
The workers’ compensation insurance market remained profitable in 2021 in spite of premium declines and such worries as sizeable COVID-19 claims.
“We’re like the nicest house in the neighbor- hood, and everybody wants to buy us,” says Pat Edwards, senior vice president of the workers’ compensation practice at Risk Placement Services, Inc. According to a new report, the National Council on Compensation Insurance (NCCI) found that 2020 private carrier net written premiums decreased from 2019 by 9.5%, down $38 billion, and that the private carrier combined ratio was 87%, with an operating gain of 23.2%.
“You would generally expect, maybe, to see premiums go up year after year only because payrolls usually go up,” which would generate more workers’ compensation premiums, says Jeff Eddinger, senior division executive at NCCI. But “the economic conditions since the pandemic have caused premiums to drop.”
Who’s on the job?
The COVID-19 pandemic dramatically shifted the way people work — or if they work at all. That has affected the workers’ compensation insurance market.
Looking back at 2020, a trio of changes had the most impact on the market, says Eddinger: The recession that followed the initial COVID-19 outbreak, subsequent layoffs, and then the start of “The Great Resignation” in which workers have not returned to the same jobs that they had before the crisis.
While the “Great Resignation” didn’t really start to take hold until 2021 (4 million Americans quit their jobs in July 2021, according to the U.S. Bureau of Labor Statistics), businesses that laid off, cut back hours or furloughed employees in 2020 have struggled to bring the same people back in the same capacity, says Eddinger. Those workers “just decided ‘nope’ and to look for something else, or not come back at all.”
Some of those workers shifted into different careers, retired, started their own businesses or became independent contractors working for multiple companies, which means that those businesses don’t necessarily need to provide workers’ compensation benefits for them.
But some workers weren’t able to return to the workforce in 2020 and continue to not work in 2021. This is especially true for women, who bear the brunt of caretaking duties. More than 2.3 million women left the workforce between February 2020 and February 2021, according to the National Women’s Law Center.
“Returning to school in 2020 was still a bit of an issue,” Eddinger says, and child care will still be a problem that will stretch beyond 2021.
Safer workplaces
Premiums continue to be cheap (and cheaper) because workplaces are simply less dangerous than they once were. That isn’t directly correlated with the pandemic, says Frank Pennachio, principal at ReSource Pro Growth Solutions. In 2019, the total number of injuries per 100-full-time workers was 2.8, the same as in 2018, according to the U.S. Bureau of Labor Statistics. Prior to 2018, that number had steadily dropped for 15 years.
“Right now, the primary focus for employers must be prevention of injuries and injury management to bring people back as expected, and to fully recover as soon as possible or at least as expected because of the labor shortage,” says Pennachio. He adds that greater safety awareness, more automation and the shift in the U.S. away from a manufacturing economy and toward one that is more service-oriented, should keep accident rates low in the future.
“We’re in a period now where, year after year, workplaces just seem to be getting safer. [Employers] put more focus on keeping their employees safe,” Eddinger says. “Fewer claims mean fewer dollars paid out.”
Concerns about an onslaught of COVID-19 claims also haven’t panned out. COVID-19 resulted in eight claims per 10,000 workers, according to a NCCI report, compared to the historic non-COVID-19 related claims frequency of more than 250 claims per 10,000 workers. NCCI also found that the average COVID-19 claim cost was $6,000, and only 25% of COVID-19 claims have been medical-only. “COVID has been a non-event to date,” Pennachio says.
Changes on the horizon
It is worth noting that the workers’ compensation market is drawing competition from insurance companies that didn’t play in this space before, says Edwards. That’s because the market has “performed better than almost all the other commercial lines.” With traditional workers’ compensation insurers already competing for business, that could result in additional pressure to reduce rates.
“Year after year, we keep seeing a combined ratio being under 100; under 90 even. It’s a little bit surprising that the results can remain that good for that long,” Eddinger says.
The passage of any sizable infrastructure bill would lead to more construction and heavy industry employment, traditionally a source of workers’ compensation claims, adds Joe Paduda, principal of Health Strategy Associates, who also writes the Managed Care Matters blog.
“Toward the end of 2022, we could see an uptick of claims when a lot of these companies are staffing up,” he says, particularly since firms will most likely need to recruit new workers, who tend to get hurt more often especially if their training is rushed. Businesses may also push their current workers to put in overtime to meet new demands before they can staff up, which can lead to accidents due to fatigue, he says.
Unchecked inflation also could affect the industry, says Edwards, particularly if it drives up the cost of health care, which will lead to higher claims and premiums. That can be staved off by releasing the $14 billion reserve redundancy into the system, he says, but if over three to five years inflation kicks up and “reserve redundancy is removed, then we could start seeing a little bit of a shift in workers’ comp.”
As employers bump up salaries to try and attract workers back, payrolls and therefore workers’ compensation spend will rise. But not by much, and with rates already so low, employers won’t be that focused on slightly higher workers’ compensation spend to match higher payrolls.
“Because rates are really low,” Paduda says, “very few people in the C-suite or anywhere close to the C-suite care about workers’ compensation because they [manage] so many other issues.”
Jen A. Miller is a New Jersey freelance journalist.
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