2024 State of the Line Guide

Posted Date: May 14, 2024

Introduction

NCCI’s annual State of the Line presentation provides an exclusive review of trends, cost drivers, and significant developments shaping the workers compensation (WC) industry. This State of the Line Guide provides a slide-by-slide examination of the key insights, data sources, and formulas underlying the State of the Line presentation.

As you review the information contained in this Guide, it may be useful to keep in mind the following market indicators and trends that NCCI’s 2024 State of the Line presentation highlighted:

Workers compensation net written premium increased 1% in 2023
The 2023 calendar year combined ratio for workers compensation is 86%, a sign of underwriting profitability for the system
Workers compensation’s 2023 accident year combined ratio is 98% with prior years continuing to experience downward reserve development
The workers compensation reserve redundancy grew to $18 billion
Lost-time claim frequency declined by 8% in 2023, which is more than two times the size of the long-term average decline
Severity changes were considered moderate in 2023 with increases of 2% for medical claim severity and 5% for indemnity claim severity

P&C Results

Net Written Premium Growth

Key Insights

Total property and casualty (P&C) net written premium for private carriers increased by 10.4% to $852 billion in 2023.
All lines of business experienced premium increases, notably in the largest lines, personal auto and homeowners, driven by large rate increases in 2023 throughout the country.
Workers compensation had the smallest growth in 2023 among the lines of business shown. As discussed in more detail in the WC premium section, the change is driven by payroll growth that is generally offset by continued decreases in rate.

Background

The net written premium in this slide provides a measure of the size of each major line of business in the property and casualty (P&C) insurance industry.

Data

National Association of Insurance Commissioners (NAIC) Annual Statement data for individual carriers prior to consolidation of affiliated carriers
Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Net Combined Ratio (by Year)

Key Insights

The Calendar Year 2023 P&C industry combined ratio is consistent with the previous year, making it another year over 100%
Private carriers produced an underwriting gain in 10 of the 21 years displayed, including 6 of the last 10 years
The 20-year average combined ratio is 100%

Background

This slide displays a long-term history of the net combined ratios for the total P&C industry. A combined ratio is the sum of the loss ratio, loss adjustment expense (LAE) ratio, dividend ratio, and underwriting expense ratio. The loss, LAE, and dividend ratios are calculated as ratios to earned premium. The underwriting expense ratio is calculated as a ratio to written premium to provide a better match of the timing of the numerator and denominator.

Data

NAIC’s Annual Statement data: 2003–2008 and 2013–2023p
Insurance Services Office: 2009–2012

The value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Combined ratios in the underlying table are in percentages.

Net Combined Ratio

Key Insights

The total P&C combined ratio was 102% for private carriers in 2023
The improvement in the Personal Auto combined ratio is offsetting the increases observed in Homeowners and other lines, resulting in a total P&C combined ratio that is consistent with last year
Workers Compensation continues to have the largest underwriting profitability of all the P&C lines shown, with a combined ratio of 86% in 2023

Background

The calendar year net combined ratios in this slide measure the overall performance of each line of business and the P&C industry as a whole. See the Background section of Net Combined Ratio (by Year) for more information.

Data

NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

WC Results

Net Combined Ratio

Key Insights

The 2023 private carrier combined ratio of 86% marks the seventh consecutive year of results under 90% and a full decade of underwriting gains
The 2023 combined ratio translates to a 14-point underwriting gain, a metric of significant underwriting profitability
At the individual carrier level, nearly 40% of carriers had a net combined ratio below 86%, and two-thirds saw an underwriting gain in 2023

Background

This slide shows workers compensation combined ratios. See the Background section of Net Combined Ratio (by Year) for more information.

Data

NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Combined ratios in the underlying table are in percentages. Information for state funds is included for informational purposes. Information for private carriers and state funds combined is also included for informational purposes, but these values are only shown back to 2011 due to data availability.

Net Combined Ratio by Component

Key Insights

The 2-point increase in the combined ratio for 2023 is primarily the result of the increase in the loss ratio
The dividends, underwriting expense, and LAE ratios are all relatively consistent with last year’s respective values
This is the seventh consecutive year with a loss ratio under 50%

Background

This slide shows the components of the workers compensation calendar year net combined ratios. The loss ratios in this slide compare net incurred losses to net earned premium. The loss ratio is the largest component of the combined ratio. The loss adjustment expense (LAE) ratio compares net incurred LAE to net earned premium. LAE includes both defense and cost containment expenses (DCCE) plus adjusting and other expenses (AOE). The underwriting expense ratio compares the costs associated with writing insurance to net written premium. The underwriting expenses included in the ratio are:

Commission and brokerage expenses
Taxes, licenses, and fees
Other customer acquisition expenses
General expenses

Policyholder dividends are the smallest component of the combined ratio and are compared to net earned premium.

Data

NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Values in the underlying table are in percentages.

Investment Gain on Insurance Transactions

Key Insights

The preliminary WC investment gain on insurance transactions (IGIT) increased slightly to 9% in 2023
This ratio is below the WC long-term average of 11.4% but above the P&C industry IGIT ratio of about 8%

Background

The overall investment gain is allocated by line of business according to the NAIC-prescribed allocation procedure.

The WC investment gain on insurance transactions (IGIT) ratio measures investment performance by comparing investment income allocated to the WC line of business to WC earned premium.

Data

NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Investment gain ratios in the underlying table are in percentages.

Pretax Operating Gain

Key Insights

A 9% investment gain ratio combined with a 14% underwriting gain resulted in a 23-point operating gain in 2023
This is the seventh straight year with results over 20%, which represents the most profitable period we’ve seen going back at least 30 years
Workers compensation results have been strong, with 9 straight years of operating gains greater than the long-term average of 13% and overall operating gains in 19 of the 21 years displayed

Background

The pretax operating gain in this slide measures the overall financial performance of the workers compensation line by considering both underwriting income and investment income. Pretax operating gain excludes direct changes to surplus, including, but not limited to, changes in:

Unrealized capital gains
Unrealized foreign exchange gain
Net deferred income tax
Nonadmitted assets
The provision for reinsurance
Surplus notes

Data

NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Pretax operating gains in the underlying table are in percentages. Data for state funds is included for informational purposes.

Net Combined Ratios—NCCI’s AY Selections vs. As Reported

Key Insights

NCCI’s selection is the level to which NCCI believes each accident year (AY) will develop over time
NCCI believes the As Reported values for AY 2023 will decline by 9 points once all claims for that year are settled and closed

Background

In this slide, NCCI’s selected net combined ratios are compared to reported private carrier workers compensation net combined ratios. The values are shown for the most recent 10 years on an accident year (AY) basis. Each AY combined ratio reflects the experience on accidents as of the latest data evaluation date. See the Background section of Net Combined Ratio (by Year) for more information.

Data

NAIC’s Annual Statement, Schedule P—Part 1D
Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

Combined ratios in the underlying table are in percentages.

Emergence of Reported WC Net Loss and LAE Ratios

Key Insights

Carriers have decreased their reported Loss and LAE Ratios from the first valuation to subsequent valuations in every AY displayed
Shown in shades of gray are the reserve releases (emergence), which show the difference in the reported Loss and LAE ratios between two consecutive valuations

Background

The net incurred loss and LAE ratio is calculated as the ratio of accident year (AY) net incurred losses and LAE to calendar year (CY) net earned premium. The AY net loss and LAE ratios change with each valuation as loss experience matures.

For each AY, the beige lines represent the carrier-reported net loss and LAE ratios as of the initial valuation (the first year-end valuation for each corresponding AY). The orange lines represent current valuation of the carrier-reported net loss and LAE ratios (as of year-end 2023).

Data

NAIC’s Annual Statement, Schedule P—Part 1D

Net loss and LAE ratios in the underlying table are in percentages.

Net Loss and LAE Ratios—NCCI’s AY Selections vs. As Reported

Key Insights

For every AY displayed, NCCI believes the current As Reported AY results will decline over time, and the recent AYs may decline significantly. As AYs mature, we have seen convergence in NCCI’s selected and the As Reported values—this pattern is expected to continue.
The AY 2023 As Reported Loss and LAE ratio is 9 points higher than NCCI’s selected.
Both the As Reported and NCCI’s Selected AY 2023 Loss and LAE ratios are similar to AY 2022.

Background

The accident year (AY) net incurred loss and LAE ratio is calculated as a ratio of AY net losses and LAE to CY earned premium. The values in this slide compare NCCI selections to those reported at the latest valuation by private carriers.

For a given AY, a deficiency occurs when NCCI’s selected net loss and LAE ratio is higher than the reported value by carriers; a redundancy occurs when NCCI’s selected net loss and LAE ratio is lower than the value reported by carriers.

Data

NAIC’s Annual Statement, Schedule P—Part 1D

Net loss and LAE ratios in the underlying table are in percentages.

Net Loss and LAE Reserve Adequacy

Key Insights

The private carrier reserve adequacy for year-end 2023 grew to –$18B (i.e., $18B redundancy). This dollar redundancy represents 15% of the total carried reserves, from NAIC’s Annual Statement Page 3.
The redundancy for AY 2023 offsets the CY reserve releases from other AYs.
WC results reflect a strong financial position and have shown consistent strong performance for more than five years.

Background

The net reserve adequacy is the dollar difference (in billions) between NCCI’s estimate of net loss and LAE reserves and the reported private carrier net loss and LAE reserves.

The overall workers compensation net reserve adequacy is combined for all AYs at each year-end valuation and considers all reserve discounts as deficiencies.

A positive value on this slide indicates an overall reserve deficiency. A negative value on this slide indicates an overall reserve redundancy.

Data

NAIC’s Annual Statement, Schedule P—Part 1D

Redundancies and deficiencies in the underlying table are in billions of dollars.

Net Combined Ratios—CY vs. AY As Reported

Key Insights

Adjustments to reserves on prior accident years impact calendar year (CY) results. Over $4 billion prior year reserve reductions influenced the CY combined ratios for each of the last seven CYs.
The Accident Year (AY) 2023 As Reported combined ratio in the NAIC Annual Statement is 98, which is comparable to the AY 2022 As Reported combined ratio of 97.

Background

In this slide, the overall private carrier workers compensation net combined ratios are shown for the most recent 10 years on both calendar year and accident year bases. Each AY combined ratio reflects experience as of the latest data valuation date. See the Background section of Net Combined Ratio (by Year) for more information.

Data

NAIC’s Annual Statement, Schedule P—Part 1D
Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The CY value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Combined ratios in the underlying table are in percentages.

WC Premium

Net Written Premium

Key Insights

The 2023 net written premium for private carriers was $43.0 billion, an increase of about 1% from 2022. This growth is slightly dampened by a large reinsurance transaction that ceded almost a quarter of a billion dollars offshore.
Total net written premium including state funds was $48.0 billion.

Background

This slide displays WC net written premium by year, separately for private carriers and state funds.

In the context of the State of the Line presentation, NCCI’s definition of state funds includes only those carriers that are both members of the American Association of State Compensation Insurance Funds and largely exempt from paying federal income taxes. All other carriers are included in the private carrier values.

Data

NAIC’s Annual Statement data
Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Premium values in the underlying table are in billions of dollars.

Residual Market Premium

Key Insights

Premium in the NCCI-serviced pools has been hovering at about $800 million from Policy Years 2019 through 2022. Policy Year 2023 is approximately $700 million.

Background

Insureds that are unable to obtain coverage in the voluntary market can secure coverage through the Residual Market Pool in participating states. The estimated ultimate premium for all Residual Market Pools that NCCI services is displayed by policy year.

Data

Pool Data for all NCCI-serviced WC Residual Market Pool states, valued as of 12/31/2023
Tennessee Reinsurance Mechanism premium is not included
NCCI’s Residual Market Quarterly Results

Residual market premium values in the underlying table are in billions of dollars.

Direct Written Premium Change—2022 to 2023

Key Insights

Between 2022 and 2023, the change in NCCI and independent bureau private carrier direct written premium was an increase of 2.6%
The changes in direct written premium this year are more moderate in most states than they were in the prior year, partially driven by less significant payroll growth in this year compared to the prior year

Background

Underlying the change in the private carrier direct written premium volume are the changes in premium volume by individual jurisdiction. The percentage changes depicted on the map exclude monopolistic fund states. Orange represents premium volume increases, while blue represents premium volume decreases. The deeper colors represent larger magnitudes of change.

Data

NAIC’s Annual Statement Statutory Page 14 for calendar year written premium by state

Direct written premium changes in the underlying table are in percentages.

Changes in Payroll by Component

Key Insights

Payroll increased by about 6% in 2023, about 2% from employment and 4% from wages.
The largest employment gains were in the Leisure and Hospitality and Health Care sectors.
Wage growth was strong across many sectors.
2022–2023 payroll growth was 6.9% for NCCI states and 5.4% for non-NCCI states. Among large states, Texas and Florida had above-average payroll growth while California and much of the Northeast had below-average payroll growth.

Background

The change in payroll from 2022 to 2023 is broken down into changes in employment and wage growth.

Data

Combined Office is an aggregation of several sectors: Information, Financial Activities, Private Education, and Professional and Business Services. All Other includes the Other Services and the Logging and Mining sectors.

US Bureau of Labor Statistics
US Bureau of Economic Analysis
NCCI

Values in the underlying table are in percentages.

Change in Combined Impact of Schedule Rating, Dividends, and Rate/Loss Cost Departure

Key Insights

The year-over-year change in the combined impact of schedule rating, dividends, and rate/loss cost departure has been about 1% per year over the last several years
While historical changes are primarily driven by rate/loss cost departures, the change in the latest policy year of +0.9% is driven by equal-sized increases in both schedule rating and rate/loss cost departures

Background

Schedule rating, dividends, and departures from bureau level loss costs/rates are the carrier-driven components to overall premium. This slide shows the year-over-year change in the combined impact of these components based on private carrier data for all jurisdictions where NCCI provides ratemaking services.

Data

NAIC’s Annual Statement Statutory Page 14
NCCI’s Financial Call data

Values in the underlying table are in factors.

WC Impact on Premium by Component

Key Insights

For NCCI states, private carrier direct written premium volume increased by 3.2% between 2022 and 2023.
The change in payroll is largely offset by the change in Loss Cost & Mix. Therefore, the increase in direct written premium is primarily driven by the change in Other Factors.

Background

This slide provides the major components impacting the overall change in private carrier direct written premium for all states where NCCI provides ratemaking services.

The Other Factors category may include changes in audit impacts, average experience mod, deductible credit types or amounts, mix of policy types, or mix between private carrier and either state fund or self-insured markets.

Data

Direct written premium change: NAIC’s Annual Statement Statutory Page 14
Components: NCCI’s Policy Data

Approved Changes in Bureau Premium Level

Key Insight

Written premiums are expected to decrease by an average of 9.2% from 2023 to 2024 as a result of loss cost/rate changes in approved NCCI filings

Background

The bureau premium level changes shown here reflect the approved changes in advisory rates, loss costs, and assigned risk rates as filed in jurisdictions where NCCI provides ratemaking services as of May 10, 2024.

The percentage changes by state, which reflect the impact on written premium (from one year to the next) due to NCCI filing activity, are weighted using calendar year direct written premium as reported to the NAIC. The changes shown reflect several factors that impact NCCI filings, such as changes in claim frequency and severity, changes in the economy, cost containment initiatives, legislative reforms, and judicial decisions. Texas is included beginning with CY 2011 and West Virginia, beginning with CY 2008.

This methodology reflects the effective date of each state’s filing when determining the impact on written premium from one year to the next.

Data

NCCI
NAIC’s Annual Statement Statutory Page 14

The value for the most recent year is preliminary because there may be additional filing approvals with effective dates in 2024.

Approved changes in bureau premium level in the underlying table are in percentages.

Most Recent Changes in Bureau Premium Level

Key Insights

The most recent filings resulted in decreases for all NCCI states
The changes range from –19.0% to –0.5%
Double-digit decreases were filed in nearly half of the states in 2024

Background

This slide displays the most recent filed change (whether approved or pending) in voluntary market advisory rates or loss costs in each jurisdiction where NCCI provides ratemaking services as of May 10, 2024. Law-only filings are not included in this analysis.

In the slide, orange represents premium level increases, while blue represents premium level decreases. The deeper colors represent larger magnitudes of change.

Data

Changes in bureau premium level in the underlying table are in percentages.

WC Loss Drivers

Medical Lost-Time Claim Severity

Key Insights

NCCI estimates that the average medical lost-time claim severity for Accident Year 2023 will be about 2% higher than Accident Year 2022
This increase in severity is driven by a decrease in the volume of the lost-time claims, rather than a change in the volume of medical loss dollars

Background

This slide displays average medical lost-time claim severity based on data for all jurisdictions where NCCI provides ratemaking services. Accident Years prior to 2004 exclude Nevada, prior to 2009 exclude Texas, and prior to 2013 exclude West Virginia. All years exclude high-deductible policies. Severity represents ultimate medical losses divided by ultimate lost-time claim counts. Data is valued as of 12/31/2022. However, Accident Year 2023 is based on preliminary data valued as of 12/31/2023.

Data

NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023

The underlying table shows two medical lost-time claim severity values for Accident Years 2004, 2009, and 2013. Accident Year 2004 is restated to exclude Nevada in order to match the states included in Accident Year 2003. Accident Year 2009 is restated to exclude Texas in order to match the states in Accident Year 2008. Accident Year 2013 is restated to exclude West Virginia in order to match the states in Accident Year 2012. This restatement ensures that each year’s severity change is based on the same group of states.

Medical Lost-Time Claim Severity vs. Price Inflation

Key Insights

Medical lost-time claim severity in NCCI states has grown slightly more than medical price inflation over the last 20 years—with much of that growth occurring prior to Accident Year 2009
Medical lost-time claim severity growth flattened between Accident Years 2009 and 2015, while medical inflation continued increasing
Since Accident Year 2015, medical lost-time claim severity and medical inflation have grown at a similar rate

Background

This slide compares the growth in average medical lost-time claim severity with the growth in the Personal Health Care (PHC) Chain-Weighted Price Index from 2003 to 2023. The PHC Chain-Weighted Price Index is a proxy for medical care price inflation that responds to changes in the blend of different medical services over time. The year-to-year severity changes are based on data for unmatched states. The year a state is first included in the data, it may influence the countrywide severity change from the prior year. Both the average medical lost-time claim severity and the PHC Chain-Weighted Price Index trend lines are indexed to 2003. All years exclude high-deductible policies.

Data

Medical lost-time claim severity is derived from NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023
The PHC Chain-Weighted Price Index is from the Centers for Medicare & Medicaid Services

Values in the underlying table are in percentages.

WCWMI

Key Insights

The Workers Compensation Weighted Medical Price Index (WCWMI) provides the same comprehensive view of medical care as the Personal Health Care (PHC) Index but on a timelier basis (monthly) and is re-weighted to be more reflective of workers compensation medical costs.
The WCWMI closely tracks the annual PHC values over time. Both indices have shown aggregate medical prices growing 1.5% per year between 2014 and 2019, around 2% per year between 2020 and 2022, and around 3% per year in 2023 and early 2024.
The Centers for Medicare & Medicaid Services (CMS) project the PHC to grow 3.3% in 2024, 3.1% in 2025, and 2.8% per year between 2026 and 2030.
Through the first quarter of 2024, the WCWMI was tracking in line with the PHC forecast for the year, and it continues to support a moderate view of medical inflation.

Background

The WCWMI is a composition of medical cost components from the Producer Price Index and the Consumer Price Index, which are re-weighted using our Medical Call data to match the mix of spend in Workers Compensation.

Another advantage of the WCWMI over the PHC is that it provides details to identify changes in trends on a monthly basis instead of annually and provides additional information around details of each category of medical spend.

Data

PHC values are projections by the CMS for Calendar Years 2023 and 2024.

US Bureau of Labor Statistics
NCCI’s Medical Data Call
Centers for Medicare & Medicaid Services (CMS)

Physician Medical Fee Schedule Groups

Key Insights

34 out of 38 states where NCCI provides ratemaking services have a physician fee schedule
24 of those states are at least partially based on Medicare

Background

This slide shows NCCI states by their fee schedule structure as of 2023.

Data

NCCI’s 2024 Annual Statistical Bulletin Exhibit 7

Cumulative Changes in Physician Cost per Active Claim

Key Insights

Fee schedules for physician services work to manage cost increases
States with any type of fee schedule experienced less of a cost increase compared to states without a fee schedule
Since 2012, physician costs in no physician fee schedule states outpaced those with a Medicare-based fee schedule by 2.3% per year on average

Background

This slide shows the cumulative change in average physician cost per active claim. An active claim is a workers compensation claim for which there is at least one medical service provided during that service year.

Data

NCCI’s Medical Data Call

Note: States are grouped based on fee schedule structures that have remained the same between Service Years 2012 and 2022. States with significant changes to fee schedule structure or incomplete data between 2012 and 2022 are excluded.

Values in the underlying table are in factors.

Medical Cost Category Shares

Key Insights

Physician and Facility payments make up the largest portion of medical costs in Service Year 2022
Outpatient & ASC has increased in paid share between 2012 and 2022
Drugs paid share has decreased between 2012 and 2022 due to a significant decline in opioid usage as well as a shift from brand-name to generic label drugs

Background

This chart shows the distribution of Medical Costs in Service Year 2022 (right-hand bars) compared to Service Year 2012 (left-hand bars). Note that both the combination of price and utilization of services result in total medical spend.

Data

NCCI’s Medical Data Call; includes all states where NCCI provides ratemaking services; Texas is excluded through Service Year 2019

Values in the underlying table are in percentages.

Indemnity Claim Severity

Key Insights

NCCI estimates that the average indemnity cost per claim for Accident Year 2023 will be about 5% higher than Accident Year 2022.
Accident Years 2022 and 2023 both saw larger-than-average increases in indemnity severity. The larger-than-average changes are largely driven by increased wages, which have risen significantly in recent years.

Background

This slide displays average indemnity claim severity based on data for all jurisdictions where NCCI provides ratemaking services. Accident Years prior to 2004 exclude Nevada, prior to 2009 exclude Texas, and prior to 2013 exclude West Virginia. All years exclude high-deductible policies. Severity represents ultimate indemnity losses divided by ultimate lost-time claims. Data is valued as of 12/31/2022. However, Accident Year 2023 is based on preliminary data valued as of 12/31/2023.

Data

NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023

The underlying table shows two indemnity severity values for Accident Years 2004, 2009, and 2013. Accident Year 2004 is restated to exclude Nevada in order to match the states included in Accident Year 2003. Accident Year 2009 is restated to exclude Texas in order to match the states in Accident Year 2008. Accident Year 2013 is restated to exclude West Virginia in order to match the states in Accident Year 2012. This restatement ensures that each year’s severity change is based on the same group of states.

Indemnity Claim Severity vs. Wage Inflation

Key Insights

The change in indemnity claim severity has historically tracked quite closely with the change in average wage
In more recent years, increased wage growth has put notable upward pressure on indemnity claim costs; however, wage growth has outpaced the growth in average indemnity claim severity

Background

This slide compares the growth in average indemnity claim severity with the growth in average weekly wages across the time period of 2003 to 2023. An adjustment to average weekly wages between 2008 and 2011 compensates for exceptional volatility in bonuses for the financial sector during these years. The year-to-year severity changes are based on data for unmatched states. The year a state is first included in the data, it may influence the countrywide severity change from the prior year. Both the WC average indemnity claim severity and average weekly wage trend lines are indexed to 2003. All years exclude high-deductible policies.

Data

Indemnity severity is derived from NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023
US Average Weekly Wage is based on Quarterly Census of Employment and Wages (QCEW) data from the US Bureau of Labor Statistics (BLS) for 2003–2007 and 2012–2019; NCCI and QCEW for 2008–2011 and 2020–2021; and BLS, the US Bureau of Economic Analysis (BEA), and NCCI for 2023p

Values in the underlying table are in percentages.

WC Average Severity at 1st Report by Size of Claim

Key Insights

Accident Year 2023 average indemnity paid+case severity increased by similar amounts for both claims under $500K total incurred (+4%) and claims above $500K total incurred (+5%).
Accident Year 2023 average medical paid+case severity increased by 5% for claims under $500K total incurred, but decreased by 16% for claims above $500K total incurred. The significantly lower average medical severity from large losses puts downward pressure on the overall medical severity, contributing to the moderate change observed for Accident Year 2023.

Background

This slide displays average indemnity and medical paid+case claim severities at a 1st report for Accident Years 2022–2023. Data is included for all jurisdictions where NCCI provides ratemaking services. All years exclude high-deductible policies. Severity represents paid+case losses divided by lost-time claims at a 1st report. Accident Year 2022 is based on data valued as of 12/31/2022, and Accident Year 2023 is based on preliminary data valued as of 12/31/2023.

Data

NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023

WC Average Total Claim Severity

Key Insights

The combination of indemnity and medical severities into total claim severity illustrates an increase in average total claim severity since Accident Year 2003—approximately +1.8% per year on average
This growth in severity is largely a function of inflation because these severity values have not been adjusted to a common inflation level

Background

This slide displays average total claim severity based on data for all jurisdictions where NCCI provides ratemaking services. Accident Years prior to 2004 exclude Nevada, prior to 2009 exclude Texas, and prior to 2013 exclude West Virginia. All years exclude high-deductible policies. Severity represents ultimate indemnity and medical losses (including losses from medical-only claims) divided by ultimate lost-time claims. Data is valued as of 12/31/2022. However, Accident Year 2023 is based on preliminary data valued as of 12/31/2023.

Data

NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023

The underlying table shows two total severity values for Accident Years 2004, 2009, and 2013. Accident Year 2004 is restated to exclude Nevada in order to match the states included in Accident Year 2003. Accident Year 2009 is restated to exclude Texas in order to match the states in Accident Year 2008. Accident Year 2013 is restated to exclude West Virginia in order to match the states in Accident Year 2012. This restatement ensures that each year’s severity change is based on the same group of states.

WC Average Total Wage-Adjusted Claim Severity

Key Insights

Wage-adjusted average total claim severity values are calculated by applying a wage adjustment to the loss amounts in previous accident years in order to bring those losses to the current wage level
On a wage-adjusted basis, total claim severity is lower than in Accident Year 2003 and has been declining since Accident Year 2008
Between Accident Years 2003–2023, wage inflation (+3.0% per year on average) outpaced total claim severity growth (+1.8% per year on average), and the net effect is a decline in wage-adjusted total claim severity of approximately 1.1% per year on average

Background

This slide displays average total wage-adjusted claim severity based on data for all jurisdictions where NCCI provides ratemaking services. Accident Years prior to 2004 exclude Nevada, prior to 2009 exclude Texas, and prior to 2013 exclude West Virginia. The year-to-year severity changes are based on data for unmatched states. The year a state is first included in the data, it may influence the countrywide severity change from the prior year. All years exclude high-deductible policies. Severity represents ultimate indemnity and medical losses (including losses from medical-only claims), adjusted to a current wage level and divided by ultimate lost-time claims. Data is valued as of 12/31/2022. However, Accident Year 2023 is based on preliminary data valued as of 12/31/2023.

Data

Total severity is derived from NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023
US Average Weekly Wage is based on Quarterly Census of Employment and Wages (QCEW) data from the US Bureau of Labor Statistics (BLS) for 2003–2007 and 2012–2019; NCCI and QCEW for 2008–2011 and 2020–2021; and BLS, the US Bureau of Economic Analysis (BEA), and NCCI for 2023p

Lost-Time Claim Frequency

Key Insights

NCCI estimates that lost-time claim frequency for Accident Year 2023 will be 8% lower than that for Accident Year 2022, more than double the long-term average change of –3.4%
Approximately 53% of carriers had a frequency change below –8% in Accident Year 2023, while 29% of carriers had a positive frequency change
Accident Years 2022 and 2023 both saw larger-than-average decreases in frequency following the pandemic-related increase in frequency that occurred in Accident Year 2021

Background

This slide displays changes in frequency (lost-time claims per million dollars of pure premium) for all jurisdictions where NCCI provides ratemaking services. The year-to-year changes are based upon matched states.

Frequency is defined as lost-time claim counts (developed to an ultimate basis) per million dollars of premium. Premium is adjusted to current wage and voluntary pure premium levels. Data is valued as of 12/31/2022. However, Accident Year 2023 is based on preliminary data valued as of 12/31/2023. Accident Years 2010–2011 and 2019–2022 show adjusted values, primarily due to significant changes in audit activity. All years exclude high-deductible policies.

Data

NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023

Values in the underlying table are in percentages.

Lost-Time Claim Frequency by Cause of Injury

Key Insights

Frequency has decreased across Accident Years 2015–2022 for all Cause of Injury claim groupings.
Strains and Slip/Fall claims are the top two causes and together account for nearly 60% of all lost-time claims. Strains are also one of the top causes of Lower Back injuries.
Slip/Fall claims have generally seen more moderate declines in frequency across the period—approximately 2% per year on average.
Strains have seen much steeper declines in frequency across the period (–4.7% per year on average)—more than double the average change for Slip/Fall claims.

Background

The average annual changes in lost-time claim frequency (reported lost-time claims per million dollars of pure premium at a 1st report) between Accident Year 2015 and Accident Year 2022 are displayed by Cause of Injury grouping. Premium is adjusted to current wage and voluntary pure premium levels. Data is included for all jurisdictions where NCCI provides ratemaking services. High-deductible policies are excluded.

Data

NCCI’s Statistical Plan data; excludes COVID-19 claims

Lost-Time Claim Frequency by Part of Body

Key Insights

Frequency of Lower Back injuries has decreased by more than any other Part of Body grouping across Accident Years 2015–2022. A focus on safety and technology advancements to help prevent these types of injuries may be contributing to Lower Back claim frequency decreasing by more than double the average annual change for all claims.
Frequencies for all other Part of Body groupings have decreased across Accident Years 2015–2022, except for mild frequency increases in Ankle/Foot and Head/Brain/Face injuries.

Background

The average annual changes in lost-time claim frequency (reported lost-time claims per million dollars of pure premium at a 1st report) between Accident Year 2015 and Accident Year 2022 are displayed by Part of Body grouping. Premium is adjusted to current wage and voluntary pure premium levels. Data is included for all jurisdictions where NCCI provides ratemaking services. High-deductible policies are excluded.

Data

NCCI’s Statistical Plan data; excludes COVID-19 claims

Appendices

Appendix A—Definitions

Accident Year (AY)—A loss accounting term for experience that is summarized by the calendar year in which an accident occurred.

Adjusting and Other Expenses (AOE) Incurred—Loss adjustment expenses, other than those categorized as Defense and Cost Containment Expense. Examples:

Fees of adjusters and settling agents (but not if engaged in a contentious defense)
Attorney fees incurred in the determination of coverage, including litigation between the insurer and the policyholder

Assigned Carrier—The insurer assigned to provide residual market coverage to an eligible employer that has applied for workers compensation insurance under NCCI’s Workers Compensation Insurance Plan. An assigned carrier can be either a Servicing Carrier or direct assignment carrier.

Calendar Year (CY)—A method of accounting that includes all financial transactions occurring during a 12-month period, beginning January 1.

Commissions and Brokerage Expenses Incurred—Fees paid to producers.

Defense and Cost Containment Expense (DCCE) Incurred—Expenses for defense by the insurer in contentious situations (whether a first-party or third-party claim) for litigation involving a claim and for cost containment expense. Examples:

Surveillance expenses
Fixed amounts for cost containment expenses
Case management expenses for managing the overall cost of a claim
Litigation management expenses
Fees or salaries for appraisers, private investigators, hearing representatives, reinspectors, and fraud investigators, if working in defense of a claim
Attorney fees incurred owing to a duty to defend
Cost of engaging experts

Direct Assignment—Assigned risk business written and serviced directly by an insurance company that has been authorized by the Insurance Department to write such business. These policies are written without reinsurance through the National Workers Compensation Reinsurance Pooling Mechanism or other reinsurance pool.

Dividends to Policyholders—When actual costs and expenses are less than anticipated costs and expenses, carriers may opt to return the difference to policyholders in the form of a dividend.

Earned Premium—The proportional share of each policy’s written premium applicable to the expired part of the policy. Derived by subtracting the change in the unearned premium reserve from the written premium.

Estimated Annual Premium—Premium charged by an insurance company, at the time the policy is issued, for coverage provided by an insurance contract for a period of time. Estimated premium is reported before endorsements or audits.

Experience Mod—A factor calculated from actual case loss experience used to adjust an insured’s manual premiums (up or down) based on the insured’s loss experience relative to the average underlying the manual premiums. It compares the insured’s experience to the average class experience.

Exposure Accident Year (EAY):

Claims/Losses–Are on an accident-year basis
Earned Premium–Final audited premium for each policy is allocated to the appropriate calendar year based on the period of exposure

General Expenses Incurred—Overhead expenses incurred in the insurer’s operations, other than those included in the other expense categories. Examples:

Salaries
Rent and rent items
Equipment

Net Written Premium—The gross premium income adjusted for additional or return premiums, including any additions for reinsurance assumed and deductions for reinsurance ceded.

Other Acquisitions, Field Supervision, and Collection Expenses Incurred—Expenses incurred in obtaining insurance business. Examples:

Salaries
Equipment
Advertising
Employee relations and welfare
Allowance to managers and agents
Postage, telephone, and express
Rent and rent items

Policy Year (PY)—The year of the effective date of the policy. Policy year financial results summarize experience for all policies with effective dates in a given calendar year period.

Pure Premium—The portion of bureau level premium that provides for indemnity and medical loss payments.

Residual Market Pool—A financial agreement among participating insurers to share in the experience of certain assigned risks. This reduces both administrative costs and annual fluctuations in the liability of participating insurers resulting from the operation of state insurance plans.

Servicing Carrier—An insurer, other than a direct assignment carrier, authorized to receive Plan assignments and provide coverage to eligible employers on behalf of insurance company members of the National Workers Compensation Reinsurance Association NFP (NWCRA)—or participants in other reinsurance pooling mechanisms—incorporated as a part of the Plan in a state.

Servicing Carrier Allowance—The ceding commission retained by a Servicing Carrier as compensation for the expenses of servicing an employer under a Workers Compensation Insurance Plan or similar program.

Taxes, Licenses, and Fees Incurred—State taxes, assessments, and miscellaneous fees. Examples:

Premium taxes
Second Injury Fund assessments
General administration funds
Guaranty funds

Unearned Premium Reserve—The proportional share of each policy’s written premium applicable to the unexpired part of the policy.

Workers Compensation Insurance Plan (WCIP or Plan)—A program established and maintained by NCCI and approved by state insurance regulatory authorities whereby workers compensation insurance may be secured by eligible employers unable to secure such coverage in the voluntary market.

Appendix B—Formulas

After-Tax Return on Surplus \[ =\frac{\small\text{Net Income}}{\small\text{Average Surplus}} \]

Average Surplus \[ =\small\text{0.5 x (Surplus as regards policyholders, December 31 current year} \\ \small\text{ + Surplus as regards policyholders, December 31 prior year)} \]

Combined Ratio \[ =\small\text{Loss Ratio + LAE Ratio + Dividend Ratio + Underwriting Expense Ratio} \] Combined Ratio (Residual Market Slides) \[ =\frac{\small\text{Losses}}{\small\text{Earned Premium}} + \frac{\small\text{Expenses and Allowances}}{\small\text{Written Premium}} \]

Dividend Ratio \[ =\frac{\small\text{Dividends to Policyholders}}{\small\text{Earned Premium}} \]

Indicated Net Loss & LAE Reserves \[ =\small\text{Ultimate Net Loss & LAE – Net Loss & LAE Payments} \]

Investment Gain on Insurance Transactions (IGIT) Ratio \[ =\frac{\small\text{Investment Gain on Funds Attributable to Insurance Transactions + Other Income Less Other Expenses}}{\small\text{Earned Premium}} \]

Investment Gain Ratio \[ =\frac{\small\text{Net Investment Gain (Loss)}}{\small\text{Earned Premium}} \]

Loss Adjustment Expense (LAE) Ratio \[ =\frac{\small\text{DCCE Incurred + AOE Incurred}}{\small\text{Earned Premium}} \]

Loss & LAE Ratio \[ =\frac{\small\text{Incurred Loss + DCCE Incurred + AOE Incurred}}{\small\text{Earned Premium}} \]

Loss Ratio \[ =\frac{\small\text{Incurred Loss}}{\small\text{Earned Premium}} \]

Net Earned Premium \[ =\small\text{Net Written Premium + Change in Unearned Premium Reserve} \]

Net Reserve Adequacy \[ =\small\text{NCCI Indicated Net Loss & LAE Reserves – Private Carrier Net Loss & LAE Reserves As Reported} \]

Premium-to-Surplus Ratio \[ =\frac{\small\text{Net Written Premium}}{\small\text{Surplus as regards policyholders}} \]

Pretax Operating Gain \[ =\small\text{1 – (Combined Ratio – Investment Gain on Insurance Transactions Ratio)} \]

Underwriting Expense Ratio \[ =\frac{ \begin{bmatrix} \begin{align} & \small\text{Commissions and Brokerage Expenses Incurred} \\ & \small\text{+ Taxes, Licenses, and Fees Incurred} \\ & \small\text{+ Other Acquisitions, Field Supervision, and Collection Expenses Incurred} \\ & \small\text{+ General Expenses Incurred} & \end{align} \end{bmatrix} } {\small\text{Written Premium}} \]

2024 State of the Line Guide

2024 State of the Line Guide

Introduction

P&C Results

Net Written Premium Growth

Key Insights

Background

Data

WC Share of Total P&C Industry Net Written Premium

Key Insights

Background

Data

Net Combined Ratio (by Year)

Key Insights

Background

Data

Net Combined Ratio

Key Insights

Background

Data

WC Results

Net Combined Ratio

Key Insights

Background

Data

Net Combined Ratio by Component

Key Insights

Background

Data

Investment Gain on Insurance Transactions

Key Insights

Background

Data

Pretax Operating Gain

Key Insights

Background

Data

Net Combined Ratios—NCCI’s AY Selections vs. As Reported

Key Insights

Background

Data

Emergence of Reported WC Net Loss and LAE Ratios

Key Insights

Background

Data

Net Loss and LAE Ratios—NCCI’s AY Selections vs. As Reported

Key Insights

Background

Data

Net Loss and LAE Reserve Adequacy

Key Insights

Background

Data

Net Combined Ratios—CY vs. AY As Reported

Key Insights

Background

Data

WC Premium

Net Written Premium

Key Insights

Background

Data

Residual Market Premium

Key Insights

Background

Data

Residual Market Share

Key Insights

Background

Data

Direct Written Premium Change—2022 to 2023

Key Insights

Background

Data

Changes in Payroll by Component

Key Insights

Background

Data

Change in Combined Impact of Schedule Rating, Dividends, and Rate/Loss Cost Departure

Key Insights