Despite looming economic uncertainty, profitability in the workers’ compensation insurance market is likely to continue in 2023, allowing for easier renewals, experts say.
The line remains profitable for insurers, and the trend of falling interest rates is likely to continue, they say.
However, wage inflation and other macroeconomic issues can put pressure on the line.
“It remains 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 lines of liability, such as auto and general liability, have been in a tougher market cycle in recent years, comp has seen an “extended soft period,”; she said.
“Claim reporting trends have been favorable over the past few years, leading to lower loss costs and actuarial forecasts and lower tax filings,” Underhill said.
– Overall, the market continues to develop well. The frequency is still gently declining,” said Pat Edwards, Chicago-based head of workers’ compensation at 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.
Data for 2021 showed a combined ratio of 87%, representing the fifth consecutive year below 90%, Underhill said. A loss ratio below 100% indicates an insurance profit for insurers.
The industry has also seen a lot in the way of rate cuts, with double-digit rate cuts expected for 2023, Edwards said.
“Obviously comp has performed well,” Edwards said. “It has been the nicest house on the block. Everyone wants to see comp as a safe haven.”
Jeff Eddinger, Boca Raton, Fla.-based senior division managing director of regulatory business management with the National Council on Compensation Insurance, said “the labor market is in a very strong position.”
Mr. Eddinger said the comp’s profitability can be attributed to the downward trend in claims rates.
Still, the market may face some challenges in 2023, including economic uncertainty surrounding a possible recession.
Comp buyers also continue to face workforce challenges spurred by a non-traditional and lower-skilled workforce due to labor shortages, according to Ms. Underhill.
“We anticipate that the 2023 renewal space for workers’ compensation will be affected by wage increases, increased medical costs, both economic and social inflation, along with the ninth consecutive year of cost reductions for agency losses,” Sharon Kent, director of workers’ compensation for Iowa. based insurer GuideOne Insurance, said in an email.
“We must ensure that the rate of renewal is adequate for exposures in our niche segments and — as a result — we may cautiously consider the adoption of modified loss charges in 2023 (where permitted by state law),” Kent wrote, referring to losses in other insurance sectors.
Looking ahead, experts noted a continued decline in the frequency of compensation claims in contrast to an increase in claims rates, which could also drive up future rates.
The rise in claims rates — an issue the industry has been looking at — could be due to factors such as an overworked and aging workforce, and individuals with co-morbidities, Edwards said.
James Sallada, casualty leader for North America with broker Willis Towers Watson, said wage inflation also continues to affect policy renewals, noting that it is important for the industry to monitor macroeconomic conditions in the event of a recession.
Still, he said, comp continues to be one of the most, if not the most, “attractive industry in P&C right now, which is why there’s an abundance of capacity.”