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Workers’ Compensation Market Overview

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Featured Solutions: Workers’ Compensation

Unlike practically every other line of business within the insurance industry, Workers’ Compensation remains in a historically soft market that is now entering its eighth year. This soft market is expected to continue for another two to three years unless a severe recession adversely affects capacity.

One of the main reasons that Workers’ Compensation remains soft is that it remains very profitable. As such, clients are highly desired by carriers looking to balance out other, less profitable lines of business such as auto or property. Virtually unlimited capacity exists with rates falling by an average of 6-7 percent annually across the U.S. Some states have seen double-digit rate drops while others have remained flat, depending on different state statutes. There are few if any restrictions, unlike E&S markets.

Claims remain stable as many industry trends have helped to decrease the number of on-the-job claims, especially in the manufacturing industry. While the severity of claims rose slightly in 2022, it hasn’t risen enough to have much of a macro impact.

Another factor in falling rates and high capacity is the lack of a catastrophic impact compared to other sectors within the industry. Hurricanes, for example, have little impact on injuries in the workplace. In fact, the tragic toll of the September 11, 2001, terrorist attacks may have been the last significant CAT event in the U.S. experienced by the Workers’ Compensation market.

While retention and renewals are high, this softness won’t last forever. Conditions will harden at some point. Inflation could further increase payrolls and prices keep rising, the result could be downward pressure on the market.

According to NCCI stats, the net written Workers’ Compensation premium totals in the U.S. for 2021 were $38.2 million, up only 0.5 percent compared to the previous year. However, there was a 10 percent increase in the first half of 2022 compared to January – June 2021, with third and fourth-quarter numbers coming later this year.

Renewal retention poses challenges for business development efforts

With such a soft market in place, there is little motivation for many companies to change their Workers’ Compensation carrier, especially based on rates. Retention rates are and will continue to remain high.

That makes it more difficult for brokers and agents to find new business, forcing them to get more creative to build their portfolios. One strategy that could work is to seek new business ventures and businesses that may be opening up, especially in lower-risk sectors like restaurants, retailers and office buildings.

Quoting a new policy is fairly straightforward. In fact, brokers and agents may be able to get an answer for a new client quickly. Answers to Workers’ Compensation submissions from lower-risk industries can often come within 24 hours, whereas some of the harder-to-place sectors may require a month or longer.

High renewal and retention rates in Workers’ Compensation also forces brokers and agents to stay in closer contact with clients in case additional needs arise. P&C and CAT lines are under so much capacity pressure that submissions are arriving regularly with clients desperate for options. That is not the case in Workers’ Compensation where brokers and agents should keep clients educated about industry trends that may affect them in the future to further build client loyalty, leading to future renewals and the occasional client referral.

Difficult classes are helped by a focus on worker safety

Manufacturing has traditionally been a sector with high numbers of claims. However increased automation in the field along with safety innovations such as tag-ins and tag-outs have helped to significantly reduce the number of Workers’ Compensation claims in recent years. More stringent OHSA guidelines have also helped, forcing employers to invest in legally required employee safety strategies. In the context of these improvements, many manufacturers have made voluntary improvements in other areas to provide even more comprehensive workplace protections.

Other difficult classes outside of manufacturing and industrial may not benefit as much from automation but Burns & Wilcox is still able to provide Workers’ Compensation options for just about any sector. Higher-risk industries like trucking, tree trimmers and roofers can still be profitable for carriers, especially if they have few claims on the books. Rate remains adequate for these sectors so policies are still relatively easy to write. Insuring non-renewals is possible depending on the context. Either way, complete transparency and fully completed submissions are required.

Healthcare laborers is another tricky class but remains viable in the Workers’ Compensation space. Carriers prefer skilled nurses over non-skilled nurses as a class because of the clinical knowledge skilled nurses offer, but capacity is available for both. Home health policies can be difficult because the amount of lifting and bending needed by aides often results in muscle pulls, back injuries and high numbers of claims. This is where rate versus exposure matters with low rates and high exposure being more difficult to place.

Although more employees are working at home in sectors that may seem low risk, clients should understand that claims can be accepted for what might be considered menial tasks an employee performs during the course of their job at home. One example Burns & Wilcox has seen in recent months was an employee carrying work files upstairs after work hours. While carrying these files, they slipped and fell, resulting in a relatively small yet notable $20,000 claim.

Burns & Wilcox essentially writes just about any type of class in Workers’ Compensation except for staffing or anything that explodes. Owner-only policies are rare.

Additional tips for brokers and agents

Finding new business can be challenging in such a soft market, especially one that is expected to continue into at least 2024. Here are a few tips for agents and brokers to keep their new business pipeline filled.

  • Proactively ask clients what they need and use that as leverage with carriers for potential upselling opportunities. This includes looking for P&C work or expanding into other lines.
  • Pay close attention to available endorsements and potential audits that may be desired or needed. Be the first to connect with clients or prospects about such options.
  • Stay informed about payroll changes with any existing clients so there are no surprises and issues later on that could decrease client confidence. Repeat business is critical given the high numbers of renewals and retention frequency.
  • Pre-quote inspections with fully updated loss runs are necessary for higher-risk businesses. Prepare prospects accordingly.

Finally, utilize the experts at Burns & Wilcox for their strong carrier networks. Relationships with 12 or more carriers are likely in most states. Our professionals will save you time by shopping submissions to carriers we are confident will be the best match for your clients.

Contributed by Laura Guthinger, Associate Vice President, Managing Director, Burns & Wilcox; Justin Dorman, National Product Manager, Workers’ Compensation, Burns & Wilcox; Morgan McCoy, Underwriter, Workers’ Compensation, Burns & Wilcox

This commentary is intended to provide a general overview of the issues contained herein and is not intended, nor should it be construed, to provide legal or regulatory advice or guidance. If you have questions or issues of a specific nature, you should consult with your own risk, legal, and compliance teams. 

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