The US workers’ compensation market continues to reflect broader economic trends, with rising wages and employment levels influencing premium growth.
According to the US Bureau of Economic Analysis, wages increased by 5.6% in October 2024 compared to the previous year, while the unemployment rate stood at 4.2% in November. These labor market conditions have pushed overall net workers’ compensation premiums above pre-pandemic levels.
Risk Placement Services (RPS) notes that certain industries, including hospitality and healthcare, have been particularly affected by wage increases, leading to upward pressure on workers’ compensation costs.
Patrick Edwards, area senior vice president and workers’ compensation practice leader at RPS, said that in a competitive job market, employers are paying more to attract talent, which is contributing to a tighter labor environment and impacting workers’ compensation premiums.
According to the National Council on Compensation Insurance’s (NCCI) 2024 State of the Line report, workers’ compensation premiums increased by 1% in 2023, with a combined ratio of 86% for the year. This marked the seventh consecutive year in which the segment’s combined ratio remained below 90%, continuing a decade-long period of underwriting profitability.
The report also found that nearly 40% of carriers had a net combined ratio below 86%, while two-thirds reported underwriting gains in 2023. The industry recorded a reserve redundancy of $18 billion, while lost-time claim frequency declined by 8%, more than double the long-term average decline in that category.
While these results show positive trends within the sector, a previous survey from the NCCI highlighted some concerns across workers' compensation industry executives, emphasizing the system's financial health, the impact of medical inflation, and uncertainties related to economic shifts and workforce changes.
The property and casualty insurance sector wrote $43 billion in workers’ compensation premiums in 2023, an increase from $42.5 billion in 2022. Workers’ compensation maintained the lowest combined ratio among all P&C lines, accounting for 5% of net written premium in the industry.
Risk Placement Services expects continued wage growth into 2025. However, despite the positive premium trends, the industry continues to manage rising medical inflation and increasing healthcare costs. Claim frequency has maintained a downward trend, but higher wages and payroll inflation have led to an increase in indemnity claims.
The correlation between wage levels and indemnity claim costs means that as employees earn more, the costs associated with their claims also rise. Additionally, the tight labor market has made it more challenging for employers to find experienced workers, leading to an increase in first-year, on-the-job injuries.
Edwards described the current market as one experiencing both challenges and opportunities. While factors such as healthcare inflation and claims-related losses pose concerns, reserve releases from workers’ compensation carriers are helping offset some of these issues, at least from a calendar year perspective.
The workers’ compensation market remains highly competitive, with significant capacity available and insurers continuing to pursue business.
Mark Williams (pictured above), area executive vice president in the workers’ compensation division at Atlas General Insurance Services, an RPS company, said that 2024 saw only a few new entrants to the market, primarily multi-line national carriers expanding into workers' compensation as part of their broader portfolio strategy.
He noted that while rate reductions have been limited, steady wage growth has helped maintain stability in the market.
Carriers are also introducing new incentives to write policies, while private equity investment continues to expand in the workers’ compensation sector. Standard lines carriers are increasingly moving into the specialty workers’ compensation space, using other product lines to mitigate potential losses.
Amanda Ikari, area senior vice president at RPS, said the market remains soft, though conditions vary among carriers. Some insurers are aggressively pricing policies to gain market share, while others are taking a more cautious approach due to previous underwriting losses.
She noted that certain carriers that had previously sought to expand their market share are now facing higher loss ratios, leading them to take a more conservative stance on pricing.
Looking ahead to 2025, stability and profitability remain key themes in the workers’ compensation market. Economic trends, including interest rate fluctuations, inflation, and employment levels, will play a role in shaping market conditions.
Risk Placement Services noted that it is closely monitoring medical inflation and rising healthcare costs, as these factors could put additional pressure on claims expenses.
While overall inflation is slowing, RPS does not expect healthcare costs to decline, as multiple factors continue to drive medical expenses upward. The broader P&C industry reported underwriting losses in 2023, but investment income helped offset those losses.
The firm is also tracking several key issues in 2025, including the impact of accident year versus calendar year loss ratios, adjustments in claims reserve redundancy, state rate changes and carrier responses, healthcare inflation, and employment trends related to payroll and wage growth.
These elements will continue to shape the workers' compensation landscape as insurers and employers navigate shifting economic and market conditions.
What are your thoughts on this story? Please feel free to share your comments below.
