A construction/transportation worker labor shortage, an aging workforce and the rise of gig workers could harm workers compensation insurers’ performance in the future and cause long-term structural changes to their results, according to a new Conning report on the sector.
Each factor could change the status quo one way or another, Conning said.
Labor Shortage/Aging Workforce
The Conning report points out there is a labor shortage for both the high-risk construction and transportation industries. As a result, employers in both sectors are hiring workers who are unqualified, inexperienced and untrained in a bid to fill vacant positions. These employees mean trouble to workers compensation insurers, Conning said, because they are “more prone to work-related injuries, stoking workers compensation loss activity.”
Adding to the pressure, average U.S. workers are aging rapidly, putting pressure on workers comp insurers in multiple ways. As Conning explains, older workers can make more safety errors, but they can also become less healthy themselves, creating more risks for insurers to worry about.
Conning sees gig workers and workers who are retained for contract jobs as another trouble spot for the workers compensation sector. The firm worries that a gig economy “may erode exposure base and premium potential” but also notes that contracted workers experience “a much higher accident rate than permanent workers.”
Not everyone agrees that gig workers will challenge insurers in terms of coverage. Other insiders see the gig economy as being stunted by poor conditions and pay. They also point out that many insurers are waiting for court and legislative decisions about whether gig workers will be classified as employees or contract workers before they adapt coverage to them or worry about gig-related risks.
Beyond these three areas, the Conning report points to robots, artificial intelligence and automation as trends to watch for the sector. Should there be wide-spread automation, Conning predicted that “a significant component of the exposure base for workers compensation insurance may be eliminated.”
A Good Couple of Years
Conning said the market will face new risks and hardening after a stellar three years. Its report concluded the results for the sector have been “more favorable than in any other period” over the last 50 years. Evidence cited includes a calendar-year combined ratio averaging 94.4 from 2015-2017 and profitability that continued in 2018, with a combined ratio “estimated to be in the high 80s,” according to the report.
New market trends won’t be the only factors contributing to market hardening. Conning said that premium growth hasn’t kept up with profitability and that loss severity is trending upward even as loss frequency continues to decline.
Conning’s full report is “Workers Compensation Insurance: As Good as It Gets.”