Signs point to continued health in workers’ compensation market

Signs Point to Continued Health in Workers’ Compensation Market

While the insurance market is challenging for some lines of coverage, workers’ compensation conditions remain favorable for buyers.

In 2021, P&C insurers turned an underwriting profit in workers’ compensation for the eighth year in a row. That’s one of many findings from the National Council on Compensation Insurance’s (NCCI) recently published annual State of the Line report, which provides insights on the performance and health of workers’ compensation marketplace.

As other rates have hardened over the last 2+ years, workers’ compensation net written premiums rose by just 1% in 2021, despite a 10% growth in payroll. Much of this can be attributed to favorable loss trends:

  • Over the last year, 36 of 38 states where NCCI provides its services saw a decline in loss costs.

  • Lost-time claim frequency rebounded in 2021 after a major decline in 2020, but remained below 2019 levels, continuing a two-decade downward trend.

  • Medical and indemnity severity was unchanged in 2021, although inflation could have a long-term impact as wages and medical costs rise. (For more on inflation, read our recent report. (opens a new window))

  • COVID-19 has not had the dramatic effect on workers’ compensation that was originally feared. More than two-thirds of COVID-19 claims reported in 2020 and 2021 were relatively small, valued at less than $1,500 each. COVID-19 claims of $100,000 or more, meanwhile, represented just 2% of all claims filed, but accounted for more than 60% of total incurred losses.

Despite inflation and other headwinds, these positive trends — and the industry’s $16 billion in excess reserves, according to NCCI’s estimates — suggest a continuation of the favorable market for workers’ compensation buyers. In the first quarter of 2022, average rates for guaranteed cost workers’ compensation buyers fell 6%, while loss-sensitive rates fell 1%, according to Lockton’s workers’ compensation policy renewal benchmarking.

For more on workers’ compensation market tends, check out NCCI’s full 2022 State of the Line Report (opens a new window). You can also learn more about conditions in workers’ compensation and other lines by exploring our June 2022 Lockton Market Update (opens a new window).