Workers' comp rate adequacy, changing workforce among sector executive's top concerns

Executives at workers’ comp carriers are increasingly worried about declining rates and the uncertainty in future claims due to changes in the American workforce, according to a survey by the National Council on Compensation Insurance (NCCI).

Profitability is also expected to become hard to achieve in this sector, according to the 101 executives surveyed. Many also voiced concern for the long-term financial health of the workers’ comp system.

However, the NCCI expects the workers’ comp sector to register a combined ratio under 100 for 2023, which would become the 10th consecutive year of profitability for the sector. NCCI bases its projection on a host of factors, including the steady decline seen in claims frequency during the past two decades, well-functioning fee schedules and slow-growing medical inflation.

“Strong employment and wages, declining loss frequency relative to premium and moderate changes in claim severity all contribute to a continuation of declining loss costs,” the NCCI report noted.

In its most recent labor market report, NCCI Executive Director and Senior Economist Stephen Cooper noted that the labor market evolved in meaningful and positive ways for workers’ comp during 2023.

“Payroll growth remained robust while turnover metrics moderated back to near pre-pandemic averages as the labor market moved towards a more balanced state,” Cooper wrote.

While medical costs are rising — causing concern at carriers about frequency, severity and large claims — the NCCI reported that workers’ comp medical severity has only grown around 1% annually since 2019. Through the same period, medical prices have also grown at a moderate rate of 2.5%-3.5% annually. Looking forward, the Centers for Medicare & Medicaid Services project that the Personal Health Care index will remain in the 2.5%-3.5% for 2024-2031.

Changing workplaces

The workforce dynamic has undergone a radical shift since 2020, with remote workers, gig workers, aging workers and a shortage of workers all having varying levels of influence on the sector. Workers’ comp executives said that all these changes is reshaping the profile of workplace injuries and what types of losses could be seen in the future.

The NCCI reported that turnover has normalized and this is reducing concerns about inexperienced workers and elevated workers’ comp claims. Regardless of age or industry experience, employees in their first year on a job accounted for 34% of all claims and nearly 7 million missed workdays from 2016-2020, The Travelers Indemnity Co reported.

In addition, labor force participation is increasing, particularly among workers age 25-54, which is helping ease worker shortages for some industries.

Further reducing claim frequency has been the staying power of remote and hybrid work arrangements, according to the NCCI.

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