At the Annual Insights Symposium (AIS), the National Council on Compensation Insurance (NCCI) presented its State of the Line Report, offering a detailed overview of the workers' compensation (WC) insurance market.
The report includes the most recent data available, including preliminary estimates for calendar year (CY) 2023 and an early look at 2024.
For CY 2023, the final written premium volume for workers' compensation net of reinsurance was $43.0 billion for private carriers. This figure remains consistent with the estimate presented at AIS 2024 and represents a 1.1% increase from the $42.5 billion written in 2022.
NCCI had initially estimated a net combined ratio of 86% for private carriers in 2023. Updated industry data now indicates a combined ratio of 85.9%, reflecting a 14.1% underwriting gain.
This marks the seventh consecutive year that the combined ratio has remained under 90%, a period that has also seen consistent underwriting gains for private carriers. The duration and magnitude of this favorable underwriting performance are considered unprecedented and reflect the ongoing soft market cycle in workers' compensation.
The investment gain on insurance transactions (IGIT), which measures investment income relative to earned premium in the WC sector, was initially estimated at 9% for 2023 at AIS 2024. This figure remains unchanged according to updated data, staying below the long-term average.
In terms of overall performance, the WC pretax operating gain—combining underwriting and investment income—reached 23.1% for CY 2023. This is in line with the preliminary estimate of 23% shared earlier and marks the seventh consecutive year in which operating gains for private carriers exceeded 20%.
The industry overall demonstrated strong performance in 2023, with the WC combined ratio significantly outperforming the broader property and casualty (P/C) industry.
During AIS 2024, NCCI highlighted that lost-time claim frequency in WC had been declining at an average rate of 3.4% annually over the past 20 accident years in the jurisdictions where NCCI provides ratemaking services. For Accident Year (AY) 2023, NCCI expects a decline of approximately 8% in claim frequency, more than double the long-term average.
The initial estimate of an 8% frequency reduction for AY 2023 was based on preliminary data and the latest available assumptions. While premium audits in 2023 showed higher-than-expected wage growth for policies effective in 2022, adjustments were made to account for this in the calculations.
NCCI increased the 2022 premium and lowered the 2023 premium to better align claims and exposure. As a result, the final estimate for frequency reduction remains at 8%, as previously predicted.
For 2024, NCCI has utilized National Association of Insurance Commissioners (NAIC) quarterly statement data, which is available on a direct basis, excluding reinsurance. To project year-end results, NCCI analyzed how direct written premium (DWP) develops throughout the year and its relationship with net written premium (NWP).
Countrywide, NAIC data shows a 0.9% decrease in DWP for private carriers through the first half of 2024, a moderation from the 2.4% decline observed in the first quarter. Based on these results, NCCI expects NWP for private carriers at year-end 2024 to remain close to the $43.0 billion seen in 2023, assuming premium trends follow historical patterns.
The overall change in premium is driven by changes in payroll and rate levels. NCCI projects that rate and loss cost level changes will reduce premium by an average of 9% in 2024, reflecting recent filings in jurisdictions where NCCI provides ratemaking services.
This reduction is due to the wage-sensitive nature of the workers' compensation exposure base, as well as continued declines in claim frequency and moderate changes in claim severity.
What are your thoughts on this story? Please feel free to share your comments below.
