Workers Comp: A Deep Dive into Financial Health and Future Trends

Understanding the Financial Health of Workers Compensation

The recent National Council on Compensation Insurance (NCCI) Annual Insights Symposium (AIS) in Orlando, Fla., shed light on the current state of the workers compensation line of business. William Nibbelin, Senior Research Actuary at Triple-I, shared his insights on the line's profitability, noting a net combined ratio of 87 for 2023—the lowest in five years. This profitability is attributed to three key factors: payroll increases, moderate severity increases, and larger-than-expected frequency declines.

Payroll Increases and Severity Trends

The direct written premium (DWP) for 2023 increased by 2.6 percent, primarily driven by a 6.2 percent growth in payroll. This growth was fueled by rising wages across all industry sectors, contributing to a combined wage growth of 3.9 percent. Additionally, job creation improved by 2.3 percent, except in the transportation and warehousing sectors. On the severity front, claim severity remained moderate at 3 percent, with medical claim severity at a low 2 percent, aligning with the 20-year trend.

Frequency Declines and Future Outlook

Claim frequency saw an 8 percent decrease in 2023, significantly outperforming the 20-year average decline of 3.4 percent. This decline is attributed to workplace safety improvements and technological advancements. Looking ahead, the labor force is expected to grow by only 4 percent from 2020 to 2030, with the only increasing contribution coming from those aged 65 and older. The symposium also highlighted the role of AI and innovation in workplace safety, with potential game-changing implications for injury reduction.