Stability in the market brings its own challenges
By Joseph S. Harrington, CPCU
If you’re allergic to excitement, there are two things you can do: watch grass grow or monitor recent changes in the operating results for workers compensation insurance.
“No news is good news,” the saying goes. So while distressed conditions in homeowners, commercial auto, and excess liability lines create headaches for agents, brokers, and buyers, prolonged stability in workers comp provides some respite.
Industry net written premium for workers comp barely grew at all in 2023, according to the 2024 State of the Line Report by the National Council for Compensation Insurance (NCCI), the principal industry advisory organization (rating bureau) for workers compensation insurance.
At an estimated $43 billion in 2023, net written premium in workers comp had fallen from nearly 8% of total P&C premium in 2003 to about 5%, limiting potential for growth in commission income.
The combined ratio for the line increased two points in 2023, but there’s no need for alarm. At 86, it was still the lowest combined ratio among all reported P&C lines, and substantially better than the industry’s overall reported combined ratio of 102. The loss ratio for the line has stabilized in the mid-40s since 2018.
“Prolonged stability in the workers compensation market is an opportunity to enhance our offerings and deliver exceptional value,” says Joe Berrios, managing director of Gallagher Bassett’s Carrier Practice. “We have leveraged this stability to invest in advanced analytics to help our clients identify trends, reduce claims frequency, and improve overall safety and wellness.”
Warning signs?
Nothing this good lasts forever, however. Patrick Edwards, workers compensation practice leader for RPS, sees developments that could be harbingers of a market shift.
“Overall results for workers comp continue to be favorable on a calendar year basis,” he says. “Calendar year results should continue to be favorable and promote rate reductions probably longer than advised.”
“Longer than advised,” in Edward’s words, because, in his eyes, results “are deteriorating on an accident year basis.” He says some carriers are “seeing deterioration in underlying profitability and looking for more rate,” but there’s little they can do to respond while the market “is crowded with competition and capacity, making it difficult to secure adequate pricing.”
Challenges and opportunities
While the good times last, however, workers comp carriers and producers have more latitude than usual in addressing emerging challenges, entering new classes and regions, and improving the performance of existing accounts.
“The workers comp market is likely to face several challenges,” says Berrios. “The evolving nature of work environments, particularly the rise of remote work and gig economy jobs, complicates traditional workers comp models. Additionally, the increasing frequency and severity of natural disasters pose risks that impact workplace safety and claims.”
“The evolving nature of work environments, particularly the rise of remote work and gig economy jobs,
complicates traditional workers comp models. Additionally, the increasing frequency and severity of natural disasters pose risks that impact workplace safety and claims.”
—Joe Berrios
Managing Director, Carrier Practice
Gallagher Bassett
Berrios and Edwards both cite inflation in the cost of medical care, resulting in increases in workers comp fee schedules, as looming threats to workers comp stability.
But for now at least, “stability in the workers compensation line has allowed us to strengthen our client relationships, enhance our service offerings, and pursue growth oppor-tunities,” Berrios says.
“By utilizing advanced analytics, we can identify trends and potential risk factors early, allowing us to develop proactive strategies to mitigate them,” he adds. “We aim to reduce our clients’ total cost of risk and enhance their overall organizational resilience.”
A&H opportunity
For agents, brokers, and insureds, the stable market for workers compensation insurance offers an opportunity to look beyond workers comp to another type of coverage that is not mandatory but has taken on new value: accident and health (A&H) insurance.
Basically, employer-provided A&H coverage compensates employees for injuries and illnesses sustained outside the course of employment. In doing so, A&H coverage can fill in gaps and avoid coverage disputes between workers comp and individual health insurance.
“What used to be a regular commute not covered by workers comp or employee accident insurance may now be considered business travel. Today, many A&H plans can be extended to include coverage for such travel.”
—Jim Villa
Senior Vice President, A&H Strategy and Distribution
Arch Insurance Company
“For current employer-buyers, it’s a soft market for A&H coverage,” says Jim Villa, senior vice president for A&H strategy and distribution at Arch Insurance Company. “Employers are familiar with the product and understand its value. The challenge is in getting new buyers to market.”
“Bleisure” opportunities
Villa says now is a good time for A&H carriers to renew their efforts to educate agents and brokers on the benefits of A&H coverage, thanks to the convergence of personal and work activities.
“Employee accident insurance has been impacted by a change in how travel is considered, especially for remote workers,” Villa says.
“Overall results for workers comp continue to be favorable on a calendar year basis. Calendar year results should continue to be favorable and promote rate reductions probably longer than advised.”
—Patrick Edwards
Workers Compensation Practice Leader
RPS
Where companies once had workers commuting relatively short distances on a daily basis at personal risk, today we have workers traveling longer distances on rare occasions when assigned or expected to do so. It’s less clear where personal and employer responsibility for accidental injury begin and end.
“What used to be a regular commute not covered by workers comp or employee accident insurance may now be considered business travel,” Villa says. “Today, many A&H plans can be extended to include coverage for such travel.”
This new dynamic extends to what Villa calls “bleisure” travel, where employees combine business travel with leisure trips.
“Bleisure can entail a business trip extended to include personal time or business travel where friends and family come along,” he says. “Either way, risk managers need to consider potential coverage gaps or coverage disputes that may arise. There’s a chance for confusion as to which coverage would respond to injuries incurred during personal activities undertaken on a business trip.”
For more information:
Arch Insurance Company
insurance.archgroup.com
Gallagher Bassett
gallagherbassett.com
RPS
rpsins.com
The author
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P&C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.
