2023 marks critical milestone for workers' compensation
NCCI’s Donnell looks back at a century of workers’ comp in the U.S. and projects what the system will need to thrive for another 100 years.
Policymakers and insurers are marking an important milestone this year — the 100-year anniversary of the creation of the National Council on Compensation Insurance (NCCI). This occasion serves as an excellent reminder of how workers’ compensation supports worker health and safety and bolsters economic growth.
A foreign import
Today’s U.S. workers’ compensation system is partially imported, patterned largely on the German employers’ liability, workers’ accident and public pension insurance laws of the late 1800s.
By the early 1900s in the United States, the human toll of industrialization had become clear. For example, in 1913 the Bureau of Labor Statistics estimated that 23,000 industrial workers died on the job and 700,000 suffered injuries. A few states — Wisconsin being the first — established the earliest versions of today’s no-fault workers’ compensation system. By 1920, 36 states had passed workers’ compensation laws. The Grand Bargain — the compromise between workers and employers to give up the right to sue in exchange for guaranteed injury compensation — became real.
In 1923, with the leadership of the National Association of Insurance Commissioners, policymakers and insurers created NCCI to foster a healthy workers’ compensation system.
That remains NCCI’s mission today.
A pragmatic role
NCCI’s role is to provide objective data and insights on the workers’ compensation system. We have delivered on that responsibility through 17 recessions, one world war, and a four-fold expansion of the U.S. workforce, 165 million people today, since NCCI’s inception.
More recently, the workers’ compensation market has remained resilient and healthy through the COVID-19 pandemic and economic-related turbulence. More than a decade of low-interest rates has caused insurers to focus intensely on data analysis and underwriting rigor.
Long-term, we saw a decline in overall claims frequency, which we expect to continue despite recently observed year-to-year pandemic-related volatility. Claims severity is muted, but uncertainty remains. This is creating familiar challenges that require all stakeholders in the market to continue to pay close attention.
Concerns for leaders
Insurance executives told us in NCCI’s recent survey that economic uncertainty and medical inflation are two of their top concerns. While unemployment remains low at 3.5%, the storm clouds of a recession loom over the economy. The Federal Reserve’s actions to tame inflation could pressure employers to reduce payrolls. That has a direct negative impact on workers’ compensation premiums. Fewer workers typically means lower premiums.
Of high interest is the risk of increased medical inflation in workers’ compensation. Headline inflation — the consumer price index (CPI) — is currently running at an annual rate of 6.5%. While lower than earlier in 2022, it is still significantly greater than during the past 20 years. As NCCI has reported, CPI is not the same as medical inflation. In fact, medical inflation has increased by half of the general inflation number, and we saw paid medical costs per claim rise only 2% in 2021.
Understanding medical inflation in workers’ compensation is not necessarily straightforward. The combination of price and utilization drives costs. The widespread adoption of fee schedules and improved controls on many prescriptions, including opioids, have kept medical costs under control in recent years.
Physicians and health facilities face the same wage and cost pressures that we see throughout the economy. Workers’ compensation will not be immune to those price pressures.
To stay ahead of these critical issues, NCCI carefully monitors trends. New analytical tools such as our Medical Data Dashboard and other resources provide shorter feedback loops and faster reaction times. NCCI’s Annual Insights Symposium in May will deliver the latest analysis and information on the workers’ compensation market.
Data is vital, but so is experience with market cycles. It is essential that NCCI stay vigilant in our role. Since workers’ compensation is a long-tail line, decisions made today may have implications for underwriting, reserving and market stability for two decades or more.
The next century
The story of the past 100 years is one of remarkable progress and success in worker safety and economic growth. It is a story worth celebrating.
But it is even more important for us at NCCI, and for leaders throughout the workers’ compensation system, to focus on the future. That’s why we are equally committed to helping carriers navigate the changing workplace and workforce.
NCCI must deliver even more timely insights and transform the way information is made available to stakeholders. We must innovate in our data collection and analysis, and ensure the system and our infrastructure are prepared for what lies ahead. This is essential to our core mission of fostering a healthy workers’ compensation system.
We are all here to help workers, especially injured workers and their families, thrive. We have delivered on this commitment for 100 years, and it is essential that we keep delivering in the century ahead.
Bill Donnell has led the NCCI for the past seven years as president and CEO. NCCI gathers data, analyzes industry trends, and provides objective insurance rate and loss cost recommendations. It is based in Boca Raton, Florida.
Opinions expressed here are the author’s own.
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