Commercial lines outlooks are stable, rating agencies say, pointing to the bright spot of continuing profits in the workers compensation line.

In addition, in early January 2024, NCCI confirmed that the rate, advisory and statistical organization expects the 2023 workers comp industry combined ratio to come in below 100 for the 10th straight year.

But NCCI also said that a survey of 101 workers comp leaders across the industry reveals the executives are worried about the streak coming to an end. More specifically, they are worried about falling rates, frequency trends and medical inflation.

Should they be?


A day after the NCCI report published, Mark Walls, vice president of specialty insurer Safety National, read the tea leaves a bit differently than NCCI experts, as he spoke about workers comp frequency and medical inflation trends during the annual “20 Issues to Watch” webinar presented by Safety National and Sedgwick, a provider of risk and benefits and claims management services.

The “20 Issues to Watch” event focused on insurance and risk issues beyond trends impacting workers comp loss costs, including geopolitical risks and war risk exclusions, climate and property risks, an increasing array of specialized employee benefits that employers are managing, liability verdicts and liability insurance tower challenges, including the potential bad faith exposure for primary carriers from higher layer insurers. Also in the workers comp arena, the webinar included a discussion of increasing state activities that move to make PTSD and mental injuries compensable, including injuries to workers who are not first responders.

Related article: Connecticut Extends PTSD Benefits to Workers Under Workers Comp

Walls first cited NCCI data on workers compensation accident frequency rates, which have mostly trended downward the last 20 years, as a factor supporting declining workers compensation insurance rates for many businesses. He then went on to highlight data released by the Bureau of Labor statistics in November and December 2023 which reveals the prospect of changing frequency trends.

The November release showed that private industry employers saw a 4.5 percent increase in workplace injuries in 2022. The December announcement revealed a 5.7 percent increase in fatal work injuries.

According to the BLS November 2023 report, the overall workplace injury rate per 100 FTE workers was essentially flat compared to 2021, but factoring in work-related illnesses pushed the frequency rate up, Walls observed.

Safety National is a large provider of excess coverage for self-insured entities, many of which are public entities, and Walls noted that data from large employers and public entities show overall accident frequency rates increasing in 2023 as well. “Some attribute this to understaffing and the high number of new employees. There have been numerous industry studies that illustrate the fact that new employees have a higher accident frequency rate than more experienced workers,” he said, going on to advise risk managers in the audience of the importance of pre-employment physicals and safety training programs despite the rush to fill positions. “Sometimes these standards are relaxed, which can lead to higher injury rates. You just can’t cut corners with safety,” he said.

Meanwhile, NCCI’s report highlighted its observation of steadily decreasing claims frequency over two decades to allay the fears of surveyed executives. “While data showed some volatility during the COVID-19 pandemic, 2022 returned to the long-term decline in claim frequency,” NCCI said.

NCCI also pointed to moderate changes in claim severity as a contributor to a continuation of declining loss costs. “NCCI continually analyzes the data with healthy skepticism in order to identify changes,” NCCI’s report said.

Addressing rising medical costs, NCCI said its analysis shows such costs “climbing modestly in workers compensation.”

“Even over the last two years as inflation has climbed, price pressure on medical worker comp claims costs has been slow to rise,” the NCCI report said.

NCCI presents this analysis: “Since 2019, workers compensation medical severity has grown at 1 percent annually. At the same time, medical indices show that price pressure is moderate, in the 2.5-3.5 percent range annually. That tells us that there are other factors in the mix offsetting overall increases in medical claim costs.”

In particular, the report notes that the mix in medical conditions treated and the type and volume of medical services all contribute to changes in workers comp medical costs.

NCCI also reports that fee schedules “in most states are functioning well as a control mechanism for most categories of medical costs,” adding that projections from the Centers for Medicare & Medicaid Services (CMS) for the Personal Health Care index remain in the 2.5-3.5 percent range for 2024 through 2031.

Likewise, Walls noted that most workers compensation medical costs are controlled by fee schedules and that the majority of fee schedules are tied to Medicare reimbursement rates. But “most fee schedules do not have automatic adjustment provisions, so in periods of inflation it can take time for the increased cost to be reflected,” he asserted. “Providers are pushing for fee schedule revisions because in the last year they have seen an increase in labor and material costs. It’s just a matter of time until we start to see these fee schedule changes, and I anticipate we’ll see a lot of them in 2024,” he said.

Giving a sense of what might be ahead, Walls offered the example of the state of Illinois, which has an automatic inflation adjustment built into its medical fee schedule. As a result, in Illinois, Walls reported, the cost for most workers compensation medical services rose 8.3 percent on Jan. 1.

Walls also noted that inflation has already hit the costs of medical services not covered by fee schedule—attendant care, long-term care, transportation costs and durable medical equipment, for example. “Attendant care services, in particular, are costing significantly more due to a shortage of qualified providers” is some part of the U.S.

“The reality is medical inflation is happening in workers compensation. And in 2024, expect this to get worse,” he said.

Implications for Commercial Lines: Rating Agency Views

Separately, rating agency outlook reports released in recent weeks note stellar workers comp results have been the underpinning of a stable overall commercial lines segment—the bright spot in a U.S. P/C insurance market in which personal lines insurers are struggling to achieve underwriting profits.

AM Best expects strong workers comp performance “to continue in 2024 despite ongoing competitive pressures and continued modest rate reductions,” said AM Best Senior Director Michael Lagomarsino.

“Although concerns over rising medical and wage inflation and the negative impacts they can have on claim severity have grown, we anticipate that claim severity will remain manageable and that claims frequency will continue to follow its long-term declining trend,” he said.

At Fitch Ratings, Managing Director James Auden also said that “future commercial lines results will be influenced by the workers compensation line, by far the most profitable product line in recent years. However, falling premium rates and potential for higher claims severity from medical inflation could lead to faster deterioration in this segment’s performance,” he added.