Triple-I: Workers’ comp industry posts strong underwriting results in 2023 with net combined ratio of 87

(The Insurer) - The workers’ compensation insurance industry recorded its second-best underwriting result in the past 20 years in 2023, with a net combined ratio of 87, according to a new report from the Insurance Information Institute (Triple-I).

The issue brief, Workers’ Compensation: State of the Risk, noted that 2023 marked the ninth consecutive year of net underwriting profit, following eight years with a net combined ratio over 100 – or 10 of the previous 11 years.

Since 2015, the net written premium growth rate for the property and casualty industry has exceeded that of workers’ compensation each year, except in 2022, the brief stated.

Triple-I also highlighted the significant decline in workers’ compensation premiums in 2020, as the onset of the Covid-19 pandemic led to a nationwide reduction in employment.

The report pointed to a -5.8 percent decline in total non-farm payroll in 2020 – the only negative annual change since 2010. From 2010 to 2019, total non-farm payroll grew at a steady annual compound rate of 1.6 percent.

The annual percent increases in 2021, 2022 and 2023 – at 2.9, 4.3 and 2.3 percent, respectively – were the highest year-over-year gains in more than two decades as the workforce rebounded from 2020, the report stated.

Using total non-farm payroll as the basis for workers’ compensation claim exposure and reported claims at 12 months from S&P Global Market Intelligence, Triple-I found that workers’ compensation claim frequency declined at an annual compound rate of -5.1 percent from 2014 to 2023.

Meanwhile, workers’ compensation severity – measured using net ultimate loss and defense and cost containment (DCC) at 12 months, divided by the number of reported claims – has increased at an annual compound rate of 4.4 percent over the same period.

However, when severity is measured relative to nominal GDP, Triple-I noted that it has declined at a rate of -4.4 percent.

“This is indicative of a severity pattern influenced more by increasing inflation than underlying historical cost trends,” the report stated.

As underwriting profitability in workers’ compensation remains strong and net written premium growth continues to lag behind the broader P&C industry, Triple-I noted that competition in the workers’ compensation sector has intensified, as measured by the Herfindahl-Hirschman Index (HHI).