Labor shortages, rising wages, and increased litigation are changing the landscape of the U.S. workers’ compensation market. These factors are putting pressure on insurance companies, altering risk assessments, and leading to new pricing strategies.
Becky Pinto, president of Arrowhead’s Workers’ Compensation Division, highlighted the ongoing labor shortages, which she attributes to an aging workforce. This demographic change is pushing employers to adopt automation and robotics to keep productivity levels up. According to Pinto, these technologies not only help fill gaps left by manual labor shortages but also change the nature of risk in various industries. As workers reskill to adapt to new technologies, wages may rise, which could influence workers’ compensation premiums.
Despite the potential for higher wages to stabilize premium totals, Pinto pointed out that they are not enough to counteract a long-term decline in premiums, especially in California. She noted a significant drop in total premium volume since 2015. The Workers’ Compensation Insurance Rating Bureau (WCIRB) recently reported an 11.2% increase in pure premium rates, which Pinto believes is necessary to address ongoing challenges.
Looking ahead, the WCIRB forecasts wage increases of 4.8% in 2025 and 4.1% in 2026. Pinto believes these increases could outpace general inflation, which is expected to remain below 3%. This scenario could lead to higher premiums in the workers’ compensation sector.
However, Pinto also warned that rising medical costs and treatment expenses are driving up claim severity. She highlighted that the costs of medical services, including physician fees and physical therapy, are contributing to this trend. Moreover, increased attorney involvement in claims is exacerbating the issue.
The market is beginning to harden, particularly for high-risk accounts. Pinto expects rate increases for poorer-performing risks, while businesses with strong performance may continue to see stable or even decreasing rates. California remains a focal point for these trends, often setting the pace for changes in the industry due to its size and economic influence.
The rise of gig work and hybrid jobs has added new challenges for underwriters. Pinto emphasized the importance of closely examining the status of gig workers and independent contractors. Recent legislation in California, such as AB5, aims to clarify the classification of these workers, making it easier for employers and regulators to understand their responsibilities.
Litigation trends are also impacting the market. Pinto noted that California, particularly Los Angeles, is experiencing high levels of litigation, which is forcing insurance companies to refine their pricing and underwriting practices. While claim frequency remains stable, the severity of claims is driving significant pressure on rates.
Technology is playing an increasingly important role in the industry. Predictive pricing tools and advanced data analysis are helping carriers assess and price risk more effectively. Pinto believes that while technology will enhance the role of underwriters, it will not replace them. Experienced underwriters will still be essential for managing complex accounts.
As the workers’ compensation landscape continues to evolve, companies that fail to embrace technology risk falling behind. Pinto’s insights suggest that adapting to these changes will be crucial for success in the future.