Workers’ compensation remains a bright spot for insurers
Expected range for rate changes next quarter1
1Note: Rate ranges presented here reflect expected renewal outcomes — as of the Lockton Market Update publication date — over the next quarter for most insurance buyers. These should not be taken as a guarantee of any specific results during renewal negotiations. Depending on risk profiles, loss histories, account specifics, and other factors, individual buyers may renew their programs outside these ranges.
Workers’ compensation remains an attractive line for commercial insurers, to the benefit of buyers. Median rates for guaranteed cost programs fell 3.7% in the fourth quarter, according to Lockton data (see Figure 7). For loss-sensitive programs, median rates fell 2.5%.
Workers’ compensation continues to provide a key cushion for insurers amid declining profitability in liability lines. It also remains an important negotiating tool when structuring broader insurance programs, allowing buyers to leverage its strong performance to optimize terms and pricing for other coverages.
Workers’ compensation profitability, however, has “become less of a tailwind” for insurers, according to the Swiss Re Institute. While workers’ compensation accounted for 20% of total commercial premiums in 2016, it made up just 11% of total premiums through the first nine months of 2024 (see Figure 8). Declining rates and higher deductibles have also squeezed margins.
In early 2023, workers’ compensation carriers projected that the market would firm due to shrinking profit margins and an anticipated rise in claim frequency and severity. Wage inflation, remote work, and employee turnover were also cited as potential drivers.
Ultimately, the shift many carriers anticipated did not occur. At the start of 2025, carriers are less vocal about an impending change, although they continue to watch several market trends.
Medical inflation remains a key concern for underwriters, fueled by provider consolidation as hospitals continue to acquire physician groups. Claims with reported losses of $2 million or more are also increasing in frequency, according to the National Council on Compensation Insurance (NCCI). This is driven by medical advances, the rising cost of specialized treatments, increasing life expectancy for severely injured workers, and expanded use of high-cost pharmaceuticals and procedures.
Among other areas, insurers are closely monitoring an evolving regulatory environment at both the state and federal levels and assessing the impact these changes could have on premiums, claim payments, and compliance standards.
At the state level, insurers are considering potential impacts from New York’s broad interpretation of mental duress in workers’ compensation cases. The state’s legal framework allows employees to file claims for what are referred to as “mental/mental” claims — those for work-related stress, anxiety, and post-traumatic stress without physical injury.
A number of states currently allow mental/mental claims, but only for first responders. Recently, more states have been considering amending their workers’ compensation statutes to allow compensable mental/ mental claims for workers in other professions. This can increase claim frequency and severity and contribute to higher costs for employers and insurers.
Meanwhile, there is speculation that President Trump will support — as the Biden administration did — the reclassification of marijuana as a Schedule III drug under the Controlled Substances Act. This could expand its inclusion in employer-sponsored health insurance and workers’ compensation programs.
Conversely, the Trump administration is expected to withdraw its defense of the Biden-era Department of Labor rule on independent contractor classification under the Fair Labor Standards Act. The 2024 rule broadened the criteria for classifying workers as employees, raising labor costs and increasing workers’ compensation exposures. If reversed, it could reduce payroll-based insurance costs.
Insurers and employers are also watching how the Trump administration will move forward on immigration enforcement. Stricter policies could drive up wages by reducing the labor pool, especially for the construction, agriculture, and hospitality sectors. Smaller workforces could lead to longer hours, job strain, and higher workplace injury rates.
Finally, as the new administration continues to reduce the size and scale of the federal workforce, cuts at the Occupational Safety and Health Administration are almost inevitable. This raises renewed concerns about workplace safety and compliance.
