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Despite looming economic uncertainty, the workers compensation insurance market’s profitability will likely continue throughout 2023, making for simpler renewals, experts say.
The line remains profitable for insurers, and the trend of decreasing rates will likely continue, they say.
Wage inflation and other macroeconomic issues, though, could add some pressure to the line.
“It’s remaining a profitable line for not only the insurers but also a favorable line of insurance for buyers,” said Brandi Underhill, senior vice president and director of P&C technical intelligence for broker Lockton Cos. LLC.
While other liability lines, such as auto and general liability, have been in a harder market cycle for the past several years, comp has seen an “extended soft period,” she said.
“The claims trends have been favorable over the more recent years, which has led to the lower loss costs and actuarial projections and lower rate filings,” Ms. Underhill said.
“Overall, the market continues to perform well. Frequency is still softly being reduced,” said Pat Edwards, Chicago-based workers compensation practice leader with Risk Placement Services Inc., a wholesale division of broker Arthur J. Gallagher & Co.
The comp market has seen eight-plus years of consecutive underwriting profitability, he said.
2021 data showed a combined ratio of 87%, representing the fifth straight year below 90%, Ms. Underhill said. A loss ratio of below 100% indicates an underwriting profit for insurers.
The industry has also seen much in the way of rate reductions, with expected double-digit rate decreases projected for 2023, Mr. Edwards said.
“Obviously, comp has performed well,” Mr. Edwards said. “It’s been the nicest house on the block. Everybody wants to view comp as a safe haven.”
Jeff Eddinger, Boca Raton, Florida-based senior division executive director of regulatory business management with the National Council on Compensation Insurance, said the “workers comp market is in a very strong position.”
Mr. Eddinger said comp’s profitability can be attributed to the downward trend in claim frequency.
Still, the market may encounter some challenges in 2023, including economic uncertainty surrounding a possible recession.
Comp buyers also continue to face labor challenges spurred by a non-traditional and lower-skilled workforce due to labor shortages, according to Ms. Underhill.
“We anticipate the 2023 renewal space for workers compensation will be impacted by wage increases, increased medical costs, both economic and social inflation, along with the ninth consecutive year of bureau loss cost decreases,” Sharon Kent, director of workers compensation for Iowa-based insurer GuideOne Insurance, said in an email.
“We need to ensure renewal rate adequacy for exposures in our niche segments and – as a result – may conservatively consider the adoption of amended loss costs in 2023 (where permitted by state statute),” Ms. Kent wrote, referring to losses in other insurance sectors.
Looking ahead, experts noted a continued dip in comp claim frequency contrasted with an uptick in claim severity, which could also drive up future rates.
The increase in claim severity – an issue the industry has been watching — could be due to factors such as an overworked and aging labor force, and individuals with comorbidities, Mr. Edwards said.
James Sallada, casualty leader for North America with broker Willis Towers Watson, said wage inflation also continues to affect insurance policy renewals, noting it’s important for the industry to monitor macroeconomic conditions in the event a recession hits.
Still, he said, comp continues to be one of the most, if not the most, “attractive line of business in P&C right now, which is why there is an abundance of capacity.”