Workers’ Comp Insurance Cost: Planning for 2025

Unless you’re in a high-risk industry, your workers’ compensation costs may feel more manageable in 2024 (as compared to other insurance coverages). The relatively “soft” workers’ compensation insurance market has been a welcome break for many employers. But don’t get too comfortable. There are workers’ comp issues you need to plan for as you look ahead to 2025.

Setting the stage

In the 1980s and ’90s, insurers were reluctant to quote workers’ compensation. With high losses and rising assigned risk charges, workers’ comp insurance providers pulled out of states like Maine due to inability to make money.

Fast forward 30+ years, and workers’ compensation is profitable for most insurers. Often, it is the coverage line they most desire since it provides stability and predictability. Further, most standard insurers will only write liability insurance in a package with workers’ comp coverage. Getting standalone liability insurance has become far more difficult, because underwriters want the workers’ comp for most industries.

While health care, roofing, and other dangerous trades can struggle to get reasonably priced workers’ comp, state rates have come down for many industries. And worker’s comp medical inflation has actually been lower than overall medical inflation. With the increase in hybrid and remote work arrangements, many employers have seen reductions in loss trends and costs.

According to the National Council on Compensation Insurance (NCCI), premium grew by only 1% in 2023, but insurers recorded a healthy 86% combined ratio and a decrease in lost-time claims of 8%. That’s good news for employers.

Workers’ compensation cost increases on the horizon?

Several recent factors, however, point to a potential uptick in workers’ comp costs. Though a hard market is unlikely to return anytime soon, it’s wise to budget for an upcoming cost increase. Here’s why:

1. According to the Bureau of Labor Statistics, wage inflation rose at 4.8% from March 2023 to March 2024 (and 5.1% for the same period in 2022 to 2023). Any wage increase will ultimately show up in the indemnity payments of a lost-time workers’ comp claim. While medical costs account for most of a claim, any sustained increase in indemnity payments will drive up the overall value of a claim.
   
   
2. While many states have reduced workers’ compensation rates, insurers eventually will need to push for higher rates as wages and medical costs grow. The political motivation to raise rates in each state is traditionally a tough battle. So, it’s unlikely to happen in 2024, but you want to monitor your state’s conversation for signs of change.
   
   
3. The calculation method for the experience modification rating (X-Mod factor) could also impact workers’ comp pricing. The NCCI made several key changes — including increasing the size of “primary” claims up to $18,000 per claim and then allowing some flexibility for state-specific situations. Companies with good loss experience likely would not see much change. However, employers with claims over the higher threshold may see X-Mod adjustments leading to higher premiums.

Ways to hold down your workers’ comp insurance cost

An experience modification rate of 1.0 is the industry average. This means companies within your industry are averaging the same claims experience. Employers with an X-Mod above 1.0 have higher-than-average or unsatisfactory claims experience. Those below 1.0 have lower-than-average or good claims experience. Organizations with higher-than-average claims can expect higher workers’ compensation insurance premiums.

Establishing and maintaining effective workers’ compensation claims management programs is a key way to control or lower your X-Mod rating. Best-in-class claims management programs include several practices to address claim frequency and severity:

• Lowering medical treatment costs through effective contracting
• Setting accurate outstanding claim reserves
• Establishing a nurse line or other vendor triage services to quickly respond to work-related injuries; this sometimes can prevent a claim altogether or reduce claim severity
• Developing a robust return-to-work program

Managing medical treatment

Controlling medical treatment is the single most effective strategy to manage workers’ compensation claims. Whether the claim is medical only or indemnity, the medical treatment received by the injured worker is typically the cost driver for the claim. Where allowed by workers’ compensation statutes, employers can manage costs by directing the medical care.

This involves creating a medical provider panel. If a workplace injury requires medical treatment, the employee chooses a provider from the panel, instead of seeking treatment on their own.

The employer’s claim administrator or managed care vendor typically manages the panel — a preferred provider organization with contracted reimbursement rates. The medical providers within the panel have expertise in treating workers’ compensation injuries. This usually results in lower medical treatment costs, reduced work restrictions, and fewer lost workdays.

Setting accurate reserves

A claim reserve is the amount of money an insurance company or third-party administrator (TPA) sets aside to fund a claim. Most insurers and TPAs maintain a guiding principle of setting claim reserves to the most probable outcome.

However, there may be a difference of opinion on the most probable outcome of a claim when:

1. The insurer or employer challenges whether an injury is work-related and compensable.
   
   
2. There are disagreements on medical treatment for approved/accepted injuries.
   
   
3. The proposed resolution strategy does not align with the employer’s claim handling philosophy.

The scenarios above call for a thorough review of the reserves and, when possible, direct negotiations with claim administrators on reserve setting. Under-reserving can create an inaccurate picture of an organization’s outstanding liabilities. Over-reserving can have a negative impact on X-Mod calculations.

Nurse triage

Engaging a nurse line or enhanced triage service at the onset of a reported injury can reap significant benefits for employers. These programs immediately place an injured employee in direct communication with a medical professional who can evaluate the extent and nature of the injury. In many cases, the employee receives an accurate diagnosis and recommended medical treatment.

Nurse line service data reveals that, on average, 40% of reported injures result in first aid or no required medical provider treatment, meaning no reported workers’ compensation claim. Without any type of triage service at the onset of a claim, an injured employee often decides to seek treatment through their own personal physician, at an emergency room/urgent care, or with some other medical provider, resulting in a reportable claim.

Return-to-work programs

Many employers have an established return-to-work program to help injured employees return as quickly as possible to their jobs. Sometimes, an employee will need to ease back into full-time work — due to doctor-prescribed work restrictions. Being back at work can benefit the employee’s mental health, while also contributing to team productivity and management of the claim cost.

Unfortunately, organizations sometimes do not execute return-to-work programs effectively. They may lack:

• Documented, detailed, or current alternative duty jobs
• Ability to accommodate work restrictions
• Manager support for adaptive work arrangements
• Staff or specific processes to maintain contact with injured employees

Some line managers do not understand the value of returning an injured employee to some type of work capacity, and they prefer to wait until the employee is able to return to full duty. This mindset results in losing more time from work and increases the claim cost. Also, return-to-work obstacles can lead to greater likelihood of attorney representation. The employee may feel undervalued, and the employment relationship can become adversarial.

Return-to-work barriers expose process gaps and often result in:

• Inability to meet productivity goals
• Lower morale within teams
• Increased insurance costs for the organization

Companies with efficient, effective return-to-work programs have better control of indemnity claims and are able to have a greater impact on claim severity and X-Mod ratings.

Preparing for 2025

To prepare for potential workers’ comp insurance cost increases in 2025, assess how you’re doing today. Are you seeing an increase in workers’ compensation claims? Have you examined the root causes of those claims and conducted a recent workplace safety analysis? Are injured employees returning to work quickly? Is the claims management process clear and efficient?

Improving your claims management procedures, medical treatment strategies, and return-to-work programs can help you reduce costs and control your X-Mod factor. To help with your insurance budgeting, talk with your broker to understand emerging regulatory changes and additional steps you can take to improve your underwriting risk profile.

Want to learn more?

For questions about  workers’ compensation program design, claims management, safety training, or loss control, connect with the Risk Strategies Casualty Team at casualty@risk‐strategies.com.

About the authors

With more than 29 years of casualty claims consulting experience, Kevin Lassiter assists clients with developing workers’ comp cost containment and litigation management strategies. He specializes in improving the quality of claims management procedures.

Mike Vitulli works with clients to address exposures that can hurt people, property, or reputations. He helps a wide variety of industries with workers’ comp insurance programs — transportation, hospitality, manufacturing, construction, and more.