WORKERS COMPENSATION INSURANCE TRENDS

If buyers are paying less and providers are earning more, that’s what you call a “win-win” situation.
For those on both sides of the workers compensation equation, the line continues its 13-year winning streak.

AM Best reports that workers comp remains a bedrock of profitability for property/casualty insurers, especially those in commercial lines, as its solid operating results compensate for sagging and volatile results in other lines. According to Best’s, workers comp reported a sterling combined ratio of 88.8 in 2024, and is on track for another profitable year in 2025, despite falling premium due to rate decreases and other pricing cuts.

Nothing lasts forever, of course. Among other things, signs of a slowdown in employment may portend shrinkage of the rating base, but that’s not yet apparent.

Importantly, workers compensation insurance is somewhat buffered from the impact of medical cost inflation that has profoundly impacted claim costs in commercial auto and general liability insurance. According to Best’s, “statutory payment schedules and different uses of physician services and pharmaceuticals limit the impact of unexpected inflation for workers compensation claims.”

View from the ground

While the strength of the workers comp line is undeniable, people “on the ground,” so to speak, detect some warning signs.

“Increasing severity of catastrophic medical claims is driving record-high claim costs,” says Mark Walls, corporate senior vice president and chief marketing officer at Safety National. As Walls sees it, that trend is not captured in traditional bureau data; he believes bureau data does not adequately account for long-tail and high-severity claims as well as claims from self-insured employers.

Over the past six years, according to Walls, Safety National has seen a 91% increase in claims over $2 million and a 183% increase in claims over $10 million. This experience comports with a recent study from a major brokerage that reported a 6.6% increase in its workers comp claim index, the greatest such increase since 2009.

Walls finds that increasing claims severity largely results from the cost of progress in addressing human health and occupational injury and illness. “Injured workers are living longer, thanks to timely access to medical intervention, and to advances in medical technology, specialization, and home healthcare,” he says. “Lifetime medical care and equipment create significant long-term claim exposure.”

Fee schedules help soften the blow, he adds, but often do not apply to “large cost drivers,” such as prosthetics or long-term nursing care. Regarding the latter, Walls says that “providers are struggling to find and retain staff, leading to inflated home healthcare and attendant care costs.”

Impact of labor shortages

Tight labor markets in general pose a potential threat to the persistent profitability of workers compensation insurance. According to Scott Bain, regional safety manager at Texas Mutual, “Labor gaps can mean faster onboarding, thinner supervision, and more overtime”—factors he says, “correlate with higher injury potential, especially in physically intensive roles.”

To head off increased frequency of occupational injury, Bain urges employers to implement on-the-job coaching and training in workplace safety. “We see strong outcomes in situations where supervisors lead frequent safety huddles and reinforce critical behaviors in the first 90 days of employment,” he says.

For its part, Texas Mutual provides free safety resources and training materials to its insureds, hosts small business resiliency events, and supports safety institutes across the Lone Star State. “When employers have the right tools and support, they’re better equipped to keep their people safe and their operations strong,” Bain says.

“Injured workers are living longer, thanks to timely access to medical intervention, and to advances in medical technology, specialization, and home healthcare. Lifetime medical care and equipment create significant long-term claim exposure.”

—Mark Walls

Corporate Senior Vice President and Chief Marketing Officer Safety National

Age and experience

From his perspective, Walls sees that the higher wages and better benefits being offered in many sectors are attracting younger, less-experienced workers to seek employment in a new line of work, while incentivizing older workers to remain in or re-enter the workforce. Unless managed properly, this combination of trends can result in higher risk for occupational injury.

“More workers are being asked to take on increasingly dangerous tasks,” Walls says. “There is a lack of training, a shortage of experienced workers, and fewer resources for managing many businesses, which can lead to a reduction in safety measures.

“It’s important for organizations to address these trends by implementing safety protocols and training, providing and upgrading protective equipment, and conducing regular safety audits,” he adds. “Companies need to promote a culture of safety to earn employee buy-in to the risk management program.”

Impact of AI

The potential effects of artificial intelligence in many fields are unnerving, but its application in occupational health and workers compensation insurance seems good to all concerned. “AI is becoming the backbone of safer, smarter, and more efficient workplaces,” says Walls. “What once felt experimental is now becoming essential.

“Wearable technology like smart helmets, vests, and sensors can monitor posture, track repetitive motions, and detect temperature,” he says. “Computer vision is making workplaces safer by turning existing security cameras into intelligent safety systems. Cameras now connect directly into networks to detect unsafe behaviors, such as improper lifting, forklift speeding, or blocked exits.”

“AI is becoming the backbone of safer, smarter,

and more efficient workplaces. What once

felt experimental is now becoming essential.”

—Mark Walls

“ [L]abor gaps can mean faster onboarding, thinner supervision, and more overtime. … We see strong
outcomes in situations where supervisors lead frequent safety huddles and reinforce critical behaviors in the first 90 days of employment.”

—Scott Bain

Regional Safety Manager

Texas Mutual

The benefits of intelligent workplace monitoring extend beyond occupational hazards. According to Walls, AI-powered firearm detection systems utilize advanced optics to help identify threats of violence, while eye-tracking technology is used to detect real-time drug or alcohol impairment.

Regarding the latter, Walls explains: “Unlike chemical testing for substances, which only detects past use, AI pinpoints impairment as it happens, helping employers protect their workforce without penalizing safe, responsible off-duty use.”

Bain is equally bullish on the likely benefits of AI in the workplace, saying that “AI does not change the physics of a task, but it can help identify patterns that lead to incidents. Video analytics and sensor data can flag unsafe postures, near misses and hazardous zones before injuries occur.”

As for AI’s impact on workers compensation insurance, Bain adds that it “can also improve triage, claim routing and early intervention.

“Used responsibly, AI has the potential to shorten cycle times including return-to-work,” he says. “We have to ensure that our workforce [in workers comp] knows how to integrate AI, not to replace the workforce, but to enhance it.”

Opportunity for innovation

Looking forward, Bain sees disruptions to supply chains, digital transformation, aging infrastructure, and outdated equipment as potentially important challenges for occupational safety and workers compensation, especially in the construction and manufacturing sectors. “These sectors are also seeing record levels of demand, which amplifies fatigue and injury exposure,” he notes.

Nonetheless, Bain says he sees “tremendous opportunity” to modernize methods for injury prevention and recovery, the two pillars of workers comp performance.

“AI does not change the physics of a task,

but it can help identify patterns that lead to incidents.

Video analytics and sensor data can flag unsafe

postures, near misses and hazardous zones before injuries occur.”

—Scott Bain

“The most immediate impact will come from injury prevention by combining analytics, wearables, and safety coaching to reduce injuries during the first year of employment,” he says. “Return-to-work innovation will be another area of growth, with telehealth, clinical partnerships, and modified duty programs helping to shorten disability durations while improving outcomes for injured workers.

“Finally, strengthening vendor and service networks—from medical providers to cybersecurity—will help the industry stay resilient and deliver consistent, high-quality care,” he adds. “The carriers that invest early in these tools and partnerships will be best positioned to sustain results if frequency pressures return.”

Not just cutting corners

As for rising claims severity in some sectors, Walls cautions that “medical cost containment is not about cutting corners.

“Tactics are available to help reduce expenses without compromising care,” he says. “First, medical bill reviews can determine if charges are accurate and comply with state fee schedules.

“Second, rehabilitation facilities are often willing to negotiate per diem rates for long-term acute care. Third, negotiating vendor pricing and monitoring usage of durable medical equipment and home health management can be effective, ensuring the injured worker receives necessary equipment and care without excessive or duplicative spending.”

As a highly regulated line of insurance, a healthy workers compensation market is supported by effective collaboration among insurers, agent/brokers, employers, medical providers, and government regulators. As Walls puts it: “Industry stakeholders have an opportunity, and a duty, to make our voices heard to help each other make informed decisions on the future of workers compensation.”

For more information:

Safety National

safetynational.com

Texas Mutual

texasmutual.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.