Economic Trends Bode Well for Workers Comp, But Emerging Issues Warrant Attention

Workers compensation insurance provides for the cost of medical care, rehabilitation, and wage replacement for injured workers and death benefits for the dependents of persons killed in work-related accidents. In recent years, it has been the most profitable property/casualty line of business, having experienced its sixth consecutive year of combined ratios under 90 and its ninth straight year of underwriting gains.

Combined ratio represents the difference between claims and expenses paid and premiums collected by insurers. A combined ratio below 100 represents an underwriting profit, and one above 100 represents a loss. 

While the broader industry has suffered due to replacement cost trends, the most recent Triple-I Issues Brief shows how workers compensation has benefited from a generally strong economy and, in particular, strong growth in payrolls. Private employment surpassed its pre-pandemic level early in 2022, according to the U.S. Department of Labor’s Bureau of Labor Statistics, and employment growth remains faster than pre-pandemic norms. The past two years have seen payroll growth at rates of approximately 10 percent.

“Even if the current tight labor market begins to relax,” the brief says, “the forces driving payroll growth – particularly an aging work force and reduced immigration – will likely keep upward pressure on payrolls.”

While current trends bode well for workers comp, the industry needs to recognize and be responsive to emerging issues that may affect the line going forward. The impact of the pandemic – suddenly prompting more generalized acceptance of remote work and introducing a new issue in the form of “long COVID” – is one example, but it is hardly the only one.

“In 2016, there were 14 mental-injury bills considered in state legislatures,” said Bill Donnell, president and CEO of the National Council on Compensation Insurance. “In 2023, year to date, there have been more than 75.”

These measures – aimed at addressing issues as diverse as post-traumatic care for firefighters and impacts of workplace violence on employees – illustrate how stakeholder expectations continuously shift.

Despite Fewer Claims, Personal Auto Insurance Payouts Increase

By Max Dorfman, Research Writer, Triple-I

The average claim payment per insured personal vehicle rose between 2002 and 2022, with higher payments by insurers more than offsetting declines in frequency, according to new research by the Insurance Research Council (IRC) – like Triple-I, an affiliate of The Institutes.

“During the first half of the study period, the combination of declining frequency and increasing severity left average insurer loss costs relatively unchanged,” said IRC president and Triple-I chief insurance officer Dale Porfilio. “However, as claim frequency leveled off and claim severity accelerated, the average payment per insured vehicle for most coverages began to climb steadily until the 2020 drop due to COVID-19. By 2022, however, average loss costs for nearly every coverage had surpassed the 2019 level.”

Frequency for both property damage liability and bodily injury liability claims fell more than 2 percent annualized over the period from 2002 to 2022, while the average payout per insured vehicle increased over 2 percent for both types of claims over the same period.

Claim frequency – which decreased sharply during the coronavirus pandemic – remained below pre-pandemic levels in 2022, while claim severity skyrocketed, with the average loss cost also increasing. Accelerating growth in claim loss costs is a key driver of rising insurance costs for consumers.

Costs also varied widely from state to state. The combined injury average loss cost in the highest state, Florida, was over five times the loss cost in the lowest state, North Dakota. Traffic conditions, medical prices, policy limits and other insurance regulations, litigiousness, fraud, and the design of the injury tort or no-fault environment all influence these costs.

Pandemic upended insured vehicle costs

During the height of COVID-19, insurers returned $14 billion of premiums to consumers through discounts, rebates, and dividends due to fewer drivers on the road. However, risky driving behaviors like speeding and distracted driving appeared to compound while the roads were quieter. Consequently, traffic fatalities increased in 2020, despite the large drop in miles driven, with the average auto claim severity rising.

In 2021 and 2022, vehicle traffic resumed and claim severity worsened as risky driving behaviors continued. As a result, traffic fatalities rose in 2021, hitting the highest levels in 15 years. This also marked the highest percentage increase since the current reporting system began in 1975.

Although some of these pressures may stabilize, the IRC report notes that the claim environment is likely to remain challenging as people continue to exhibit risky driving behavior. Additionally, longer-term pressures on injury claim severity from cost drivers, such as heavy medical utilization, cost-shifting, and claim abuse, continue to increase insured vehicle costs.

Triple-I CEO on Podcast: We’re All Risk Managers

By Max Dorfman, Research Writer, Triple-I

Economic turbulence, political unrest, climate catastrophes, and the aftermath of a global pandemic are just a few of the forces demanding that everyone – homeowners, consumers, businesses, and policymakers, as well as risk-management professionals – take responsibility for understanding and reducing the perils facing all of us, Triple-I CEO Sean Kevelighan said in a recent episode of the Predict & Prevent podcast.

Triple-I CEO Sean Kevelighan

“We’re simply living more and more in harm’s way,” Kevelighan told Peter Miller, president and CEO of The Institutes and host of the podcast, which explores how innovators are combating some of the biggest risk challenges facing society by working to eliminate losses before they occur. “We’re a riskier society in terms of our behavior, and this is placing pressure on the traditional risk-transfer tool that is insurance.”

“Even before we got into COVID, severity in catastrophes, both natural and manmade, had been increasing,” Kevelighan said. The two CEOs discussed this growth in severity and what it means for insurers and the policyholders they protect.

“There’s little doubt that predict and prevent is urgently needed,” Miller said. “But the big question remains how? How can we put these principles and practices into action?”

Among other things, Kevelighan talked about the role of telematics and the Internet of Things in helping policyholders anticipate losses and mitigate them in advance by making investments or changing their behaviors. Automobile telematics, for example, shouldn’t simply be about getting discounted insurance premiums.

“It should be about helping people become safer drivers,” Kevelighan said.

Predicting and preventing costly losses has to involve collective responsibility by all parties. It’s no longer enough to simply buy an insurance policy and rest comfortably in the knowledge that, if something bad happens, you’ll get a payout.  A change in mindset is required.

As Kevelighan put it, “Nobody wins from a loss.”

The Predict & Prevent podcast can be found on Apple Podcasts, Spotify, Google Podcasts, and Stitcher. Other recent episodes include:

 How FEMA Does Resiliency; Computer Vision Enhances Safety

Predicting Wildfires, Worker Injury with Better Risk Data

 Preventing Catastrophic Water Damage

Policymaker Perspectives

Hidden Dangers Uncovered