INFLATION & WORKERS ' COMP
How Inflation Impacts Workers ’ Compensation Insurance
This past year has seen growing inflation concerns , impacting individuals and industries across the board . The commercial insurance market is no exception to these concerns . Similar to other goods and services , inflation can also elevate the cost of insurance .
In the scope of workers ’ compensation coverage , inflation issues have become increasingly evident through various sector trends — including labor shifts , rising wages , higher medical expenses and rate adequacy challenges . With this in mind , it ’ s important for businesses to better understand these trends and learn what they can do to mitigate inflation concerns within their workers ’ compensation programs .
This article provides more information on how inflation impacts workers ’ compensation insurance , outlines key factors currently influencing coverage costs and offers best practices to help businesses keep such costs under control .
WORKERS ’ COMPENSATION INSURANCE AND INFLATION
The average change in expenses for consumer goods — also known as the consumer price index ( CPI )— has reached 40-year highs over the past year , according to the Bureau of Labor Statistics ( BLS ). Although these CPI trends highlight the prevalence of inflation issues for individuals and certain industries , it ’ s important to note that such trends don ’ t directly impact workers ’ compensation coverage .
Rather , this segment is primarily affected by medical inflation , which refers to rising prices for health care necessities ( e . g ., medical devices , treatment , supplies and pharmaceuticals ). These prices are typically determined a year in advance based on projections by Medicare and private insurance contracts . Because such projections took place before inflation concerns skyrocketed last year , medical inflation has remained fairly low compared to CPI trends .
As a result , the workers ’ compensation insurance sector has yet to face the full impacts of rising inflation issues . Nevertheless , the coming year ’ s projections could present increased medical inflation concerns , thus elevating claim costs and affecting overall coverage expenses going forward .
Fortunately , the segment is better equipped to handle inflation issues than other commercial lines of coverage . This is because the sector has stayed resilient in recent years , performing as an outlier by remaining profitable . According to the National Council on Compensation Insurance ( NCCI ), the segment ’ s private carrier combined ratio in 2021 was 87 , matching 2020 ’ s results and marking the eighth consecutive year of underwriting profit . The sector ’ s net written premium also significantly declined in 2020 and remained stable in 2021 .
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