NCCI recently conducted its annual survey of insurance executives on top-of-mind issues in the workers compensation (WC) industry. The survey functions as a barometer of current industry sentiment and examines future challenges and opportunities. NCCI uses this extensive input to respond to the needs of its stakeholders in the workers compensation system.
Insurers’ top concerns include rate adequacy, the shifting workplace and workforce, medical inflation, and economic uncertainty. While these results are somewhat consistent with NCCI’s recent surveys, executives also noted the emergence of new, complex topics that they are watching closely heading into 2024. This article connects what’s top of mind for carrier executives with current and relevant insights that NCCI delivers.
What We’re Hearing: Executives expressed concerns about the steady decline in rates and loss costs. Questions arose about whether the data and analysis currently being used are sufficient to evaluate potential risks to the long-term financial health of the system. Carriers are anticipating it to become more challenging to maintain profitability in the market.
What We’re Seeing: NCCI’s workers compensation data shows a strong and healthy system. NCCI expects a 2023 combined ratio under 100, which would be the 10th consecutive year of underwriting profitability. Several factors give us confidence in our assessment:
- Claim frequency has steadily decreased for two decades. While data showed some volatility during the COVID-19 pandemic, 2022 returned to the long-term decline in claim frequency.
- Medical severity has been moderate in recent years. Even over the last two years as inflation has climbed, price pressure on medical WC claims costs has been slow to rise. Additionally, fee schedules in most states are functioning well as a control mechanism for most categories of medical costs.
- Wages have risen significantly since the pandemic and higher wages generally translate to higher indemnity payouts. However, because premiums are based on wages, higher indemnity costs are naturally offset by increasing premiums.
- Strong employment and wages, declining loss frequency relative to premium, and moderate changes in claim severity all contribute to a continuation of declining loss costs.
What’s Next: Look for NCCI’s in-depth report on ratemaking and the long-term health of the system, providing additional insight and transparency. NCCI is continually analyzing the data with healthy skepticism in order to identify changes in trends.
What We’re Hearing: Medical costs are rising, causing uncertainty for carriers who are concerned about frequency, severity, and large claims. These costs coupled with inflation in general make pricing workers compensation insurance a bigger challenge.
What We’re Seeing: 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% to 3.5% range annually. That tells us that there are other factors in the mix offsetting overall increases in medical claim costs. The mix in medical conditions treated and the type and volume of medical services all contribute to changes in medical costs. In addition, as mentioned above, fee schedules in most states are functioning well as a control mechanism for most categories of medical costs. Projections from the Centers for Medicare & Medicaid Services (CMS) for the Personal Health Care index remain in the 2.5% to 3.5% range for 2024 through 2031.
What’s New: NCCI provides perspective and insight on the trends in our
medical inflation series and our recently released webinar on
Physician Service Utilization–A Multistate Review. Medical severity is always a concern for those pricing workers compensation programs, yet current projections of the Personal Health Care index from CMS remain in the 2.5% to 3.5% range for 2024 through 2031. NCCI will continue delivering information on this topic. Carriers can also check out regularly updated detailed insights on physician, facility, and prescription costs as part of NCCI’s
Claims Data Dashboard.
What We’re Hearing: Many executives noted that while wages and consumer inflation are rising, workers compensation loss costs and rates are declining. While employment is strong and economic growth is solid, they question whether the labor market will start to stabilize or if wage inflation is the new normal.
What We’re Seeing: NCCI’s
Quarterly Economics Briefing—Q3 2023 indicates a shift toward a more balanced labor market, rather than a deteriorating labor market. Although employment growth has slowed, it still remains healthy, while wage growth remains elevated compared to the pre-pandemic levels, which in turn supports premium growth. The probability of a recession has diminished in the past quarter as consumer spending remains supported by strong employment levels, real income growth, further capacity for debt, and still-elevated excess savings.
What’s New: NCCI has launched a
Labor Market Insights report, which delivers timely perspectives on what the latest jobs report means for workers compensation. This monthly publication is designed to provide just-in-time information to help industry leaders make informed decisions.
What We’re Hearing: The changing workforce includes telecommuters, gig workers, aging workers, inexperienced workers, and an overall shortage of workers. Carriers noted that they’re evaluating how this new dynamic changes the profile of workplace injuries and what losses might look like in the future.
What We’re Seeing: Recent reports, such as the
Quarterly Economics Briefing—Q3 2023 and
Labor Market Insights echo these concerns, while projecting a shift in the labor market from the extremes of 2021 to more balanced levels. Turnover has normalized, easing concerns about short-tenured, inexperienced workers. Increased labor force participation, especially for prime-age workers (ages 25 to 54), is easing worker shortages. Despite the focus on returning to the office, remote work and hybrid schedules are persistent. And they are expected to be lasting effects of the pandemic and key contributors to lowering frequency.
What’s New: Generational changes are emerging with baby boomers moving out of the workforce; NCCI’s recent research on
Temporary Disability Benefit Duration takes a closer look into what this could mean for the industry.
What We’re Hearing: Looking ahead, carrier executives are preparing for emerging challenges that could reshape the insurance industry. These challenges include climate change, the expansion of marijuana legislation, the impacts of artificial intelligence, and the prospects for wearables and other new safety technologies.
What’s New: Experts at NCCI regularly evaluate the latest industry trends, and workplace safety is always top of mind. NCCI’s newest
series on safety technology delivers cutting edge analysis on how wearables, artificial intelligence, and more are helping to create safer workplaces. Our
State Insight tool maintains the latest updates on the status of marijuana legislation across the country, and our
Annual Insights Symposium 2024 will address in depth many of these emerging issues.
NCCI pays close attention to the concerns voiced in its annual Carrier Executive Survey and through its myriad of daily interactions with carriers, regulators, and other key stakeholders. This input helps to shape our plans to bring additional value to the workers compensation system through a set of strategic initiatives:
- To broaden NCCI’s data assets to enhance our expansive analysis on industry topics such as market conditions, medical inflation, and the changing workforce
- To revitalize and refresh the classification system to make it more efficient, while providing better differentiation within large classes
- To enable more intuitive access to NCCI tools and information, with fast, efficient access for industry professionals to get what they want when they need it
The 2023 Carrier Executive Survey includes responses from 101 executives representing 98 companies, including the largest multiline, multistate carriers; as well as many smaller, regional, and single-line workers compensation insurers.
These survey results inform NCCI’s research and priorities going into 2024 to support the health of the system. For more of the latest analysis on the top carrier concerns and emerging issues, check out the
INSIGHTS portal.
This article is provided solely as a reference tool to be used for informational purposes only. The information in this article shall not be construed or interpreted as providing legal or any other advice. Use of this article for any purpose other than as set forth herein is strictly prohibited.
