According to Fitch Ratings, workers’ compensation saw a combined ratio of 92% for the previous year.
An immediate concern is the growing pressure from medical inflation, which had been somewhat tame in 2022. For the past year (ending Nov. 30, 2022), the medical consumer price index (CPI) was up over 4%, as compared to 1.7% during the same time frame in the previous year.
Workers’ compensation insurance is a critical component of employee safety. Recent years have seen workers comp claims frequency decline, thanks to an increased focus on risk management and safety in the workplace. However, Fitch Ratings, Inc. has warned that this trend could reverse due to unfavorable pricing trends, competition from other insurers, and other economic pressures.
Despite these risks, workers’ comp has remained a resilient insurance product. According to Fitch Ratings, the combined ratio for workers’ comp was 90% between 2017 and 2021. This suggests that the insurance industry is relatively healthy overall. However, Fitch Ratings has projected a modest change in this figure for 2022, estimating a combined ratio of 92% for the entire year.
The insurance industry’s direct loss ratio for workers’ comp has been strong in the first nine months of 2022. According to Fitch Ratings, this ratio stood at 47%, an 8.3% increase from previous years due to wage growth and payroll expansion. Additionally, flat or downward prices on workers’ comp insurance have made self-insuring less attractive, which could be a contributing factor in slowing policy count attrition. This is encouraging news for insurance providers and shows that there has been steady progress in the sector. With insurance companies continuing to innovate and expand their offerings, it looks like the insurance industry will remain a key player in the economy going forward.
However, the rating agency warned this premium growth is not likely to stand for a long time.
Fitch Ratings reports a 1% drop in workers comp renewal rates during the first three quarters of 2022 and are projecting this is going to happen for the first three quarters of 2023, driving prices to drop again.
But according to Fitch, the growing pressure from medical inflation is something everyone should be concerned about in 2023. This was not on our radar in 2022, now it is and we are here to assist. For the past 12 months (ending Nov. 30, 2022), the medical consumer price index (CPI) was up 4.2%. During the same time in 2021, the medical cost CPI was up 1.7%. We plan to provide the numbers for 2023, please follow us on social media for the latest updates.