Lauded as the most profitable commercial insurance line, workers compensation is seeing increases in indemnity payments in several large states post-pandemic, likely spurred by wage inflation, but the trend is unlikely to trigger a reversal in year-over-year rate decreases for now, experts say.

In the latest report to show comp payments to injured workers on the rise, the Workers Compensation Research Institute on April 23 released data that showed indemnity benefits per workers comp claim grew at a “rapid” pace of 6% or more in 2022 in 16 out of 17 states analyzed, with several showing double-digit increases.

WCRI said the tight labor market post-pandemic led to wage growth across the board, highlighting several states that saw wages increase as high as 9%. That trend is likely to continue, experts say, as more than a dozen states are seeking to increase or have already increased the minimum wage.

A report released Tuesday by the U.S. Department of Labor’s   Bureau of Labor Statistics showed the Employment Cost Index — which it calls “the broadest measure of labor costs” — increased 1.2% in the first quarter, after rising by 0.9% in the fourth quarter of 2023.

Sebastian Negrusa, Cambridge, Massachusetts-based WCRI’s vice president of research, said longer disability timelines and higher employee turnover during the pandemic were also contributing factors to the rise in indemnity in workers comp.

“Our main conclusion was that it was economic factors related to the pandemic and the subsequent recovery that likely contributed to these recent changes in wages,” he said. “And, to some extent, these economic as well as other factors contributed to the duration of temporary disability, which is another key factor in indemnity payments.”

Industry experts say the increases, some temporary and spurred by the pandemic, will likely be offset by increases in premium — based on payroll — and the industry’s continuing downward trend in the frequency of workplace injuries.

“There's a long-term decline in frequency for many years, and that, so far, is outweighing any increases that we see in medical or indemnity severity,” said Christine Williams, New York-based managing director of the Workers’ Compensation Center of Excellence at Marsh LLC.

“It's going to be a little bit different here and there, but, generally, the impact of any indemnity cost increase would be minimal to the workers comp line of business overall, but we do want to watch this trend,” she said.

Analysts with A.M. Best Co. Inc., who pegged in a 2023 report that a continuing downward loss trend in comp has helped boost the industry’s reserves and profits, said rises in indemnity – with wage inflation triggering the increases — are also an area to watch.

“Yes, we will see more larger losses per claim on indemnity, but you're also going to see a big increase in premium to go with it because the rates are set according to whatever the payroll is,” said Christopher Graham, an Oldwick, New Jersey-based senior industry research analyst for A.M. Best.

David Blades, A.M. Best associate director, also based in Oldwick, said rising payments to injured workers, coupled with other factors such as medical inflation, are issues “we definitely have our eyes on.”

“We as an industry, I think we're looking for when we might start seeing some potential problems creep into the workers comp market and when we'll start seeing some of the margins tighten or be a little more constricted,” Mr. Blades said. “But, right now, we haven't seen anything that we need the flashing neon light on … but there's no question that we're looking at it.”