Workers' comp: preparing for emerging challenges after a decade of profitability

Michelle Glass, senior underwriter of North America casualty and workers’ compensation strategy lead, discusses key factors behind sustained profitability in workers' compensation, emerging challenges and how Axis Re is navigating this evolving landscape.

What factors have driven workers' compensation profitability over the past decade, and how sustainable are these trends?

A combination of deliberate improvements and fortuitous circumstances have driven profitability. Carriers have enhanced claims handling by focusing on managing tail risk through stronger case reserving practices, mitigating adverse developments we've seen in the past. Efforts to settle claims where regulations permit, return injured workers to employment and adopt medical provider networks and fee schedules have supported increased predictability in claims outcomes.

The application of analytics to claims data has further advanced underwriting, risk selection and pricing. Technological advancements have improved workplace safety, reducing claim frequency and severity. On the “fortuitous” side, moderate medical inflation and reduced claim frequency during Covid-19 restrictions have also contributed.

The market can shift rapidly due to factors like economic uncertainty, regulatory shifts, or rising medical costs. In my over 30 years in the industry, I've seen various market cycles, including significant unprofitability in the late 1990s and early 2000s. Those challenging times led to the deliberate improvements we've seen in the industry, but we must remain vigilant.

What emerging trends is Axis Re monitoring in workers' compensation, and how might they impact the future?

We're closely watching several emerging trends that present both challenges and opportunities. Economic uncertainty and a slowing economy could impact industry growth. Increases in medical inflation may affect claim costs, and moderating wage inflation could influence premium levels and negatively impact claim frequency.

Workforce shifts are critical. An aging workforce may result in longer recovery times and higher claim severity. The rise of hybrid and remote work introduces complexities in determining whether an injury occurred during employment. Conversely, as some employers mandate a return to on-site work, we may see changes in claim frequency patterns.

Climate change is another concern. Extreme heat events heighten the risk of heat-related claims, particularly among outdoor workers. Regulatory developments add complexity, with some states expanding benefits especially in areas like mental health and heat exposure, potentially increasing claim frequency and severity.

While medical advancements may raise costs, they can also reduce utilization, helping offset those increases.

How does Axis Re help carriers navigate these trends and challenges?

At Axis Re, we offer a suite of reinsurance solutions tailored to the diverse needs of carriers and their clients. This includes quota share arrangements to support exposure and premium growth, excess of loss coverages to manage volatility, and catastrophe covers for multi-claimant losses from events like industrial accidents, natural disasters, or terrorism.

While AI and analytics are valuable tools for risk assessment, there's immense value in the historical knowledge and nuanced understanding that come from decades of navigating different market cycles. Having navigated various market shifts, our team offers seasoned guidance and rapidly assesses new challenges by leveraging past experiences to inform present strategies.

Our broad market perspective, gained from working with carriers across diverse segments, allows us to identify emerging issues early. We maintain regular contact with clients through broker partners, offering insights that help them swiftly adapt to regulatory changes, economic shifts, or evolving workforce dynamics.

Ultimately, we aim to blend the precision and efficiency of modern technology with the seasoned judgment that comes from deep industry experience. This ensures optimal service, helping partners navigate current challenges while preparing for future ones. People are at the heart of what we do, and we’re committed to making a meaningful impact on both our partners and the individuals they serve.