A Work in Progress: The Future of Workers’ Comp
Our Workers' Compensation experts discuss the state of today’s market, and what you and your clients might see next.
"As Maine goes, so goes the nation," was a popular saying in the late 19th century. When it comes to the Workers' Compensation market, many feel that way about California. With an economy larger than that of many countries, California represents nearly 25% of the Workers' Compensation market.1
In 2022 — a year where the National Council of Compensation Insurance(NCCI) recommended double-digit rate reductions for the voluntary market in several states — the Workers' Compensation Insurance Rating Bureau of California® (WCIRB) proposed an average 7.6% pure premium rate increase in California, that would have gone into effect September 1, 2022. In mid-July, California Insurance Commissioner Ricardo Lara rejected this proposal,2 although he didn't recommend a rate decrease — a sign that more challenging times may lay ahead.
"The excess market, which takes a longer view than the primary market — particularly guaranteed cost programs — has been raising rates for several years," said L.J. Battagliese, area president for RPS. "This could be the year that we start seeing rate increases in the California market."
In May 2022, WCIRB reported that the state's projected accident year combined ratio for 2021 is 112%.3 Compare that to 101% for California Workers' Compensation in 2020 and the NCCI's 2021 accident-year combined ratio of 102%.
The long-tail nature of many Workers' Comp claims also makes things complicated. According to Battagliese, in California, it isn't uncommon for claims to remain open for three to five years or even close and reopen several times, as an old injury flares up and prevents an employee from working.
Cumulative trauma claims often start out simple but quickly grow in complexity and cost. These workplace injuries, such as hearing loss, tendinitis or carpal tunnel, result from repetitive motion extending over time.
In a 2018 report, WCIRB stated that, "Cumulative trauma claims are significantly more likely than other indemnity claims to be represented, filed post-termination of the employee, and initially denied." In addition, they were "found to be significantly more complex than other claims and much more likely involving multiple claims filed by the same claimant...."4
Another California trend worth watching is the emergence of insurtechs.
Many of these new market entrants see themselves as tech companies, rather than insurers. As such, they're willing to be a low-cost underwriter of guaranteed-cost programs. Due to their lower expense ratio, they're less loss sensitive than traditional carriers that have been in this market for many years. Quoting, underwriting and binding are done with as little human intervention as possible. This process makes for much faster turnaround, something that appeals to insureds.
Learn more about what's next for the Workers' Comp industry in the RPS 2022 U.S. Workers' Compensation Market Outlook.DOWNLOAD REPORT
1Moorecraft, Bethan. "Workers' Comp Market Will Turn…Eventually," Insurance Business, 10 Feb 2020.
2Hoolihan, Jeremy, "California Insurance Commissioner Leaves Workers' Comp Rates Flat," Rancho Mesa Insurance Services, 2 Aug 2022.
3"WCIRB Quarterly Experience Report — as of December 31, 2021," WCIRB, May 2022. PDF file.
4"The World of Cumulative Trauma Claims," WCIRB, 2018. PDF file.