What’s Going on With Workers Compensation

“Workers compensation continues to be the most profitable major line for the [insurance] industry…”

Mort Large, director of workers’ compensation strategy for Nationwide (via RoughNotes)

Depending on the industry your business is in, it’s likely that workers compensation makes up 30-50% of your overall business insurance costs. It’s important to know what to expect moving forward when it comes to this line of business.

Workers Compensation Costs: Going up or down?

For almost the last decade, workers compensation insurance has proven to be the only sustainably profitable line of business for insurance carriers. As a result, it has seen some of the lowest increases year over year.

In a world where everything is getting more expensive, how is it that work comp can remain so constant from a cost perspective? Medical costs are rising (medical inflation), and claims severity is increasing every year. Yet, carriers continue to make money…how?

The labor market plays a huge part in the static workers compensation costs. With lower unemployment rates and increasing wages, insurance companies are incurring more premiums at a base level. However, for employers, this is just seen as the cost of adding more employees – not increasing rates. Also with a tighter job market, positions are typically more competitive which means it is less likely that a company will have inexperienced workers. As a result, the likelihood of claims decreases.

Managed care networks also have a positive impact. What’s a managed care network? It is essentially a contract that insurance companies have with health care providers which allows them to control the overall impact of a claim. The kicker with this is that employers must be on the ball when it comes to prompt claims reporting to allow the managed care network to “do its thing” and to keep your injured employees from visiting “employee-friendly” providers.

Overall – the consensus moving forward is that carriers still have plenty of capacity (read: appetite) for business moving forward. And, because this line of business is so profitable, you will find carriers fighting over market share and thanks to capitalism, you will find that work comp rates will continue to be competitive for the near future.

Worth Noting: Workers Compensation in Delaware

One of the ways that businesses can save on their overall workers compensation insurance costs is by excluding owners and officers from coverage (in states that allow it). The majority of small businesses do this for a few reasons:

  1. It lowers your overall cost.
  2. Owners and officers wouldn’t file a claim against their insurance because they know their rates will increase if they do.
  3. Why pay for something you’re never going to use?

That said, the state of Delaware recently passed legislation which allows businesses to take further advantage of this ideology. House Bill 144 was passed this year which allows workers compensation exemptions for up to 8 owners/officers of LLC’s (previously 4).

In many family-owned businesses, family members are often listed as officers or owners for estate-planning and/or tax purposes. In the past, a business would have to include payroll for any owner/officers above the 4 person limit. With the passing of House Bill 144, they can now exempt themselves from more payroll. As a result, they can lower their overall workers compensation costs.

What Should You Do Moving Forward?

Given the state of the workers compensation market, it’s more important than ever to make sure you’re getting your bang for your buck. When it comes to work comp, this means more than just a competitive rate. As was mentioned, nearly every carrier is going to bring a competitive rate to the table.

What matters now is that you find a carrier who is proactive with claims management. Also, be sure to find an agent who is willing to advise on your behalf to make sure claims are handled in a way that will have minimal impact on your long-term experience mod. To learn more about how you can improve your work comp risk plan – check out our website.

Hunter McHugh

President, McHugh Insurance Group