Workers’ compensation insurance has been a competitive and profitable market for several years, with insureds enjoying lower rates and bountiful capacity from carriers.
However, shifts in the medical industry, including rising costs and rapidly advancing treatments, are slowly gaining traction. Experts have told Insurance Business that the flatlining claims frequency could soon lead to a rise in workers' comp prices.
“We’re at a tipping point," said Jeff Cole (pictured right), assistant vice president, national accounts at Sentry Insurance. “In the last 10 years, we’ve had combined ratios less than 100%. This industry is very profitable, largely due to the declining frequency of claims.”
Cole pointed out that the previous year’s loss, which had shored up industry results, is starting to thin, which makes the market more vulnerable to price hikes in the future.
According to Sentry’s specialists, one key underlying challenge in workers' compensation is medical inflation. Medical advancements, while improving patient outcomes, are contributing to rising costs in workers’ comp cases, particularly for serious injuries.
“There’s the ability to improve the lives of people unlike ever before, but those advances aren’t cheap,” noted Cole. “When these treatments are applied, they add significant expenses to the system.”
Another factor compounding this inflation is wage growth in the medical field, especially for doctors and nurses, which has persisted since the pandemic.
“The wage inflation in the medical space took off during COVID and it’s still ticking up,” he said. A shortage of healthcare professionals is driving these wage increases, adding pressure to the system.
Jean Feldman (pictured left), senior director of managed care at Sentry Insurance, highlighted a significant trend impacting workers’ comp costs: access to care.
"Access to care is something we think about every day, especially when underwriting national Fortune 1000 customers who operate in multiple locations across jurisdictions,” Feldman said.
“Some regions are better at reimbursing providers according to fee schedules, while others lag. As a result, doctors are leaving the workers’ comp system due to the increasing paperwork and administrative burden.”
A surge in acquisitions of private physician practices by large hospital systems since the pandemic has also put pressure on the medical system, according to Feldman. Rapid consolidation has reduced the availability of independent providers, who now must meet the financial goals of their corporate owners.
“It's something that we're working with very closely with our national suppliers, to figure out what can we do now and in the next three to five years,” Feldman said. “There’s a doctor shortage and we have to come up with newer solutions. Maybe that needs to be being more open to using more nurse practitioners and physician assistants.”
While the medical inflation and access challenges loom large, safety services and risk management are playing an increasingly vital role in preventing injuries in the workplace.
Large accounts, where companies have high deductibles, are especially focused on safety, according to Cole. “These companies often pay for the first $2 million or more of each claim, so they are motivated to prevent injuries,” he said. “The best claim is the one that didn’t happen.”
Sentry’s safety programs have been key to their 90% retention rate over the last 20 years. Cole said that three-quarters of customers have been with us for five years or more, and half of them for a decade or longer.
"Our programs aren't just one-year solutions,” he said. “We adapt and evolve with medical advances, data analytics, and other innovations. We work closely with clients to find long-term solutions to their problems."
It’s not just medical advances shaping risk management but also advancements in data. By analyzing data, insurance companies can better assess which claims are likely to become more severe and allocate resources accordingly.
Wearable technology is also helping companies enhance workplace safety. Some firms are using video analysis to assess workers’ movements and identify risky behaviors that could lead to injury.
“Using advanced software, they analyze whether an employee is putting themselves at risk, whether that’s pressure on joints, the back, or shoulders,” said Cole. “By capturing video of each job, they can identify ways to improve ergonomics. Maybe the employee shouldn't lean over while lifting, or perhaps the table height needs adjusting to prevent strain. It’s a simple but powerful tool for improving safety.”
Finally, virtual reality (VR) is also playing a role in both injury prevention and rehabilitation. This technology is now being applied to help injured workers reduce pain, manage anxiety, and improve their overall recovery experience.
VR therapy is still in its early stages, but Feldman noted that the current data so far is promising. “The hope is that it will lead to quicker recoveries and lower overall claim costs, especially for workers dealing with chronic pain or post-traumatic stress,” she said.
However, as the technology rapidly evolves, so must the industry’s approach to workers’ compensation. Wearables, virtual reality, and advanced data analytics are just the beginning of a broader transformation within the market; these innovations are pushing the boundaries of how injuries are prevented and managed.
While technology and analytics are proving to be invaluable tools, the key to success in the workers' compensation industry remains a strong partnership between insurers and their customers.
“This is all done in partnership with our customers,” Feldman said. “We're excited about the conversations we're having with them about these new tools, and we know they’ll continue to evolve. What we’re doing today will likely look different in three years as technology rapidly advances.”
Are you a broker in the workers’ compensation space? What are your thoughts on trends in the market? Please share your thoughts below.
