How Agents Can Explain the Myriad Factors Influencing the Workers Comp Market
The latest report by AM Best rated the workers compensation insurance market as stable, noting that it continues to remain a profitable segment. Supported by favorable prior-year loss reserves, strong risk-based capitalization and favorable earnings, the market has been one of the most consistently profitable property & casualty segments over the past decade, according to the report.
Yet, it is facing underlying pricing pressures that are set to adversely impact the market nationwide.
“The market continues to face pressures from escalating medical costs, healthcare inflation and increased frequency and severity of claims,” says Patrick Edwards, workers comp practice leader at Risk Placement Services (RPS). “We’re seeing continued state legislative shifts and expansion of coverage presumptions to include permanent disability benefits, cardiovascular disease and certain infectious diseases such as COVID, and specific cancers and PTSD for first responders.”
Further, “what is covered under the workers comp policy has been expanded,” says Tony Foley, executive vice president, workers comp, Amwins.
Changes within the industry are leading to “an increase in mental health and post-traumatic stress disorder claims, with many states expanding eligibility for these claims,” he says, “as well as for workplace stress claims, such as anxiety and depression that are tied to workplace trauma.”
As trusted advisors, “agents can make sure their clients are educated and deploying best practices to reduce risk and limit litigation of such claims by establishing mental health resources that are available to all their employees,” Foley says. “Training managers on incident reporting, documenting workplace events thoroughly and recommending establishing a relationship with a workers comp-focused law firm can help them get out in front of any potential litigation.”
Additionally, as medical innovation, treatments and pharmaceuticals improve the care offered for workers, it is also fueling increasing costs, leading to a 32% increase in the average workers comp claim size since 2017, according to a Conning report.
In 2024, healthcare costs continued to rise steadily, with increases in medical claim severity and indemnity claim severity, which both rose 6%, according to NCCI’s “2025 State of the Line Report.”
The nationwide change in indemnity severity is largely driven by rising wages, which have increased significantly in recent years. The 2024 increase in medical severity exceeded recent medical inflation price indices, reflecting recent increases in medical utilization, the NCCI report said.
There are also additional pressures on industries such as healthcare, technology, agriculture, and construction, which are facing a workforce shortage.
“We’re seeing more severity in claims just because the workforce change is not keeping up with the pace of the industry,” says Laura Page, director, Green Tree Risk Partners. “With the labor shortages, companies are onboarding less experienced workers—the number one thing we hear in our industry is that we’re not training the next generation, so we’re getting less experienced workers, which in turn is increasing both the frequency and severity of losses.”
Further, over the past year, state-specific changes were significant and could be a leading indicator for the direction of the workers comp market.
“The biggest changes are coming out of California where, after 10 straight years of declining rates, the Department of Insurance approved an 8.7% pure premium rate increase,” Foley says. “The increase was recommended after the state’s combined operating ratio reached 127%—this will have a big impact on the market because the state represents at least 20% of the workers comp market.”
Additionally, Nevada approved a 21.6% loss cost increase in March 2026, “driven by high claims frequency and severity along with rising medical costs,” Edwards says. New Nevada legislation eliminated the $36,000 payroll cap per employee, Edwards adds, requiring premium calculations on full wages beginning in October. “In other states, we’ve seen a slowing down of significant rate decreases.”
In a market that remains profitable but is facing underlying challenges, “agents are well-positioned to play a consultative role in explaining to clients how the current workers comp market conditions are influenced by myriad factors, whether they are state-specific or tied to historical losses,” Edwards says. “Those who not only understand the market but can also communicate how the larger picture affects the client will provide the best partnership and value.”
Olivia Overman is IA content editor.
Insurance Markets
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