It’s been quite a couple of years for the insurance industry, with the impacts of COVID-19, inflation, and fundamental changes to the labor market taking their toll. Despite all this, however, the workers’ compensation system is booming – it remains one of the most profitable segments of the US property and casualty insurance industry.
According to the National Council on Compensation Insurance, the industry’s net written premium increased about 1% to $43 billion in 2021, with private carrier premium accounting for $38 billion of that figure. Private carriers posted a combined ratio of 87% for the year, making 2021 the fifth straight year with a combined ratio below 90% for the workers’ compensation segment and the eighth consecutive year of underwriting profitability.
IBA recently chatted with leaders in the workers’ compensation space on the current state of the industry. They warned that while the sector has been booming for the past several years, change could be on the horizon.
Julie Richt, executive vice president of revenue at Method Insurance, said the workers’ compensation system was “very resilient coming out of the pandemic” and is now in a “strong and stable” position. However, Richt warned that workers’ comp insurers needed to adapt to the changing ways in which people do their jobs.
“This is a very profitable space overall, but there have been some challenges over the last couple of years around the workforce,” Richt said. “The workforce has changed a lot – people have gone remote, jobs have changed, workers have shuffled, and they’ve looked at the pandemic as an opportunity to reevaluate their jobs/careers.”
Richt said the risks tied to labor vary by industry. In sectors that saw exponential growth and rapid hiring during the pandemic – for example, the wholesale and inland marine/commercial auto segments – a lack of adequate employee training and onboarding led to a spike in the frequency and severity of workers’ compensation claims.
Similarly, service industries trying to bounce back after COVID have had to hire inexperienced workers from a shrinking labor pool – a recipe for possible accidents.
“A short-tenured worker would be defined as less than one year with an employer … and the effect that has on claims frequency really does vary by segment,” said Matt Zender, senior vice president of workers’ compensation strategy at AmTrust Financial Services. “In the leisure, hospitality and restaurant space, workers are 50% more likely to experience a claim if they’ve been in the job for less than one year. That sounds bad, but if you take that same tenure and apply it to the wholesale space, they’re 200% more likely to have a claim. It’s due to the lack of familiarity, the lack of training, and the changing landscape they’re dealing with.”
