Chicago Business: U.S. Workers’ Compensation Insurance

Workers comp insurance reform

According to Chicago Business, US workers’ compensation direct premiums earned rose 4.3% year over year in the first quarter, and the industry’s overall direct loss ratio deteriorated by 2.3 percentage points. Direct premiums earned grew to $13.5 billion from $12.95 billion a year earlier.

Largest insurers of workers’ compensation in the US

Travelers kept its position as the largest writer of workers’ compensation in the US in the first quarter of 2023, with $950.7 million in direct premiums earned. It was followed closely by The Hartford, which claimed second place, with $910.7 million in direct premiums earned.

The Hartford and Travelers both control about 7% of the overall workers’ compensation market each, while AmTrust Financial’s 6% of the market makes it the third-largest insurer in the business line.

Combined ratios improved

US insurers’ combined ratios in the workers’ compensation business line improved for full year 2022 compared to the prior year. The industry had a combined ratio of 84.5% for 2022, an improvement from 88.1% in 2021.

How is the cost of workers’ compensation insurance determined?

Similar businesses in each state, that exhibit comparable workplace injury patterns and costs, are grouped into classes. Rates are determined for each class based on the prior five years of loss costs for all businesses within that class. This provides an equitable system where rates are charged commensurate with the actual loss experience of the class of business. Economic factors for each state are then overlaid onto this data to determine the rate for each class in a given state. A system called “experience rating” allows for modification of the class rates based on the loss history of an individual business. This system provides business owners a significant amount of control over the cost of their workers’ compensation premium – safe businesses are rewarded with lower premiums and unsafe businesses are penalized with higher premiums.

Who is required to carry workers’ compensation insurance?

According to Chicago Business, all states, with a small number of exceptions, require businesses with employees who are not owners, to purchased workers’ compensation coverage for those employees.

Businesses that fail to provide workers’ compensation coverage can face severe and costly repercussions including payment of claims out of pocket, fines and possible imprisonment, as well as possibly losing the right to conduct business in the state.

How workers’ compensation claims work?

The injured parties must visit a healthcare professional immediately so a doctor can provide medical reports to support any claims. Employees can then begin the claims filing process with insurer, being sure to include any state-mandated paperwork or forms. Once these claims are approved, the recipient will receive their compensation payments and can return to work when they feel they are ready.