Emerging Challenges in US Workers’ Compensation Market: Swiss Re Analysis

The US workers’ compensation (WC) insurance market, which has enjoyed a decade of profitability, is now encountering emerging challenges, according to a Swiss Re analysis. Despite strong performance in 2023, with a 10th consecutive year of underwriting profitability, the market must navigate potential headwinds including medical inflation, fierce competition, and the hiring of less experienced workers due to a tight job market.

Reserve releases have masked underlying deterioration in Accident Year combined ratios (CoR), while premium rate reductions, particularly in competitive states like California, have raised concerns. Medical costs, driven by hospital expenses and increased post-COVID utilization, are projected to rise significantly, potentially impacting future profitability.

The WC market’s complexity is further heightened by state-specific regulations and varying market dynamics. In states with challenging loss ratios, such as California, New York, and New Jersey, intense competition continues to drive premium rates down. To sustain profitability, re/insurers must adopt a cautious underwriting approach, leveraging improved data analytics and maintaining pricing discipline.