States with the Highest Workers’ Comp Rates

In 2023, the workers’ compensation market demonstrated significant strength and stability, marking another year of impressive performance for private carriers. According to data from the National Council on Compensation Insurance (NCCI), this sector achieved remarkable results, continuing a decade-long trend of profitability.

Key Metrics and Trends

Combined Ratio and Premiums:
Private workers’ compensation carriers recorded a combined ratio of 86 for the 2023 calendar year, maintaining the combined ratio below 90 for the seventh consecutive year. This consistent performance underscores the financial health and operational efficiency within the industry. Moreover, workers’ compensation premiums saw a modest increase, rising to $43 billion, which is a 1% uptick from 2022. This growth, albeit slight, reflects the sector’s resilience and capacity for steady expansion.

Reserve Redundancy:
The reserve redundancy in the workers’ compensation sector expanded to $18 billion, highlighting the industry’s robust financial foundation. This redundancy acts as a financial buffer, ensuring that carriers can cover future claims and obligations without significant financial strain.

Market Dynamics:
The voluntary market carriers showcased their strength as the residual market’s share of the workers’ compensation line continued its downward trajectory. The residual market’s share dropped from 6.1% in 2022 to 5% in 2023. For context, the residual market held a 12.5% share in 2003. This decline indicates a healthier voluntary market where more businesses can secure workers’ compensation insurance through regular market channels rather than relying on state-assigned risk pools.

Claim Frequency and Severity

In 2023, the frequency of lost-time claims decreased by 8%, which is twice the rate of the long-term average decline. This reduction in claim frequency is a positive indicator, suggesting improvements in workplace safety and risk management practices. Additionally, the severity of claims showed moderation last year, with NCCI reporting a 2% rise in medical-claim severity and a 5% rise in indemnity-claim severity. While these increases are notable, they are relatively modest, indicating controlled growth in claim costs.

Opioid Utilization and Prescription Trends

Opioid utilization in workers’ compensation claims experienced one of its most significant declines in recent years. According to the Enlyte Group, LLC, opioid utilization per claim dropped by 9.7%, and the cost per claim decreased by 7.2%. This decline reflects ongoing efforts to address and mitigate opioid dependence within the workers’ compensation system. However, the utilization of alternatives to opioids also saw decreases, albeit to a lesser extent. Non-steroidal anti-inflammatory drugs (NSAIDs) saw a 3% drop in utilization, while anticonvulsants declined by 7.4%.

Over the past year, eight of the top ten therapeutic drug classes experienced an increase in prescription costs. Notably, two classes saw costs rise by more than 10%. Enlyte reported that utilization per claim fell in every drug class except for medications treating migraines. Migraine medications experienced a 17% increase in utilization and a 10.2% rise in cost, while respiratory medications had the largest cost increase at 14.7% per prescription. These trends highlight the evolving landscape of pharmaceutical management in workers’ compensation.

Highest Workers’ Comp Costs by State

The slideshow above reviews the states with the highest workers’ comp costs based on the Workers’ Compensation Index Rate, which is a biennial survey conducted by the Oregon Department of Consumer & Business Services’ Information Division. The index rate is calculated per $100 of payroll and serves as the basis for determining final premiums for workers’ compensation insurance.

Key States with High Workers’ Comp Rates:

California: Known for its high cost of living and stringent regulatory environment, California consistently ranks among the states with the highest workers’ comp rates.
New York: With its dense population and high wage rates, New York also faces significant workers’ comp costs.
New Jersey: Similar to New York, New Jersey’s high labor costs contribute to its position on this list.
Alaska: The remote and hazardous nature of many jobs in Alaska drives up the cost of workers’ compensation insurance.

These states face higher costs due to a combination of factors including higher average wages, cost of living, and regulatory requirements. Businesses operating in these states must account for these higher insurance costs in their overall risk management and financial planning strategies.

Conclusion

The workers’ compensation market continues to demonstrate resilience and profitability, with key metrics showing stable or positive trends. However, businesses must remain vigilant about evolving risks and regulatory changes that can impact their insurance costs. By staying informed and proactive, companies can better navigate the complexities of workers’ compensation insurance and ensure they are adequately protected.

For businesses looking to optimize their workers’ compensation strategies, it is crucial to work with experienced insurance professionals who can provide tailored advice and solutions. At Skyscraper Insurance, we are committed to helping our clients understand and manage their workers’ compensation needs, ensuring they are prepared for whatever challenges lie ahead.

Stay tuned for more insights and updates on the latest trends in workers’ compensation insurance.

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Commercial P&C Insurance

Commercial Office Space Set for a Strong Comeback

The sustained increase in demand for office space across the nation since late 2022 suggests that the market has moved past its lowest point, according to insights from the real estate technology platform, VTS. Demand for office space began to rise in late 2022 and continued into early 2023. Since then, the office market has experienced a period of stability and growth, supported by favorable economic factors, indicating a market rebound. This conclusion is drawn from the VTS Office Demand Index (VODI), which tracks unique new tenant tour requests for office properties in key U.S. markets. The VODI serves as an early indicator of future office leasing activity. According to the index, demand for office space has grown consistently over the past 12 months, closing the second quarter with a 17% year-over-year increase and a 34% rise from the VODI’s lowest point in December 2022. A significant shift in office-based employment patterns further supports the belief that demand for office space has stabilized. After reaching its peak in August 2022, office-based employment declined by 3.9% in early 2024. However, this trend has since stabilized, and employment growth has remained steady. Additionally, a recent decrease in work-from-home rates has fueled the renewed demand for office space. “They say you can only recognize a market bottom after it has passed, and the office space market is no exception. Following what we now see as the bottom, the national demand has gradually increased, though it remains susceptible to economic challenges,” said Nick Romito, CEO of VTS. “However, the growth observed in VODI over the past 18 months, coupled with positive trends in the office-using workforce, suggests that the market has reset, and the worst is behind us.” It’s important to note that this national trend does not impact all local markets equally. Cities like Los Angeles and New York City have seen healthy growth in office space demand, while markets such as San Francisco and Washington, D.C., have experienced prolonged stagnation. In Los Angeles, office space demand surged in the second quarter, briefly surpassing pre-COVID levels, driven by an increase in the average size of office spaces sought by tenants. New York City followed a similar overall pattern, though with some softness in the second quarter. Conversely, San Francisco’s demand for office space remains unpredictable, largely due to its tech-focused workforce, which continues to favor remote work more than other industries. “Markets heavily dependent on the tech sector, like San Francisco and Seattle, are on a markedly different post-COVID recovery path compared to more diversified markets like Los Angeles and New York City. It may take some time before we see office demand in San Francisco and Seattle return to pre-COVID levels,” added Ryan Masiello, Chief Strategy Officer at VTS.

Cyber Liability

Global IT Outage Puts Business Interruption Insurance in the Spotlight

In July, a global IT outage had a significant impact on business interruption insurance policies, overshadowing the effects on cyber insurance coverages. “This incident wasn’t a result of a malicious attack, which is why typical cyber insurance policies may not have been activated,” explained Peter McMurtrie, a partner in West Monroe’s insurance sector, in an interview with PropertyCasualty360.com. “Where coverage was applicable, factors like deductible amounts, waiting periods, and coverage limits played a critical role in determining the extent of exposure,” McMurtrie noted. “Standard policies for small businesses were less likely to offer coverage, while more complex policies for mid-sized companies and Fortune 500 corporations may have included broader triggers for non-malicious outages caused by third-party software issues.” The outage was triggered by a software update on July 19, 2024, by cybersecurity firm CrowdStrike, which affected organizations worldwide using Microsoft Windows. This interruption had far-reaching consequences, including disrupting hospital systems, media outlets, financial institutions, delaying thousands of flights, and halting daily business operations. McMurtrie emphasized that while the initial impact of the outage was similar for both large and small businesses, the ability to recover operations and whether insurance covered the loss of business income varied. “Larger companies are more likely to have advanced disaster recovery plans that ensure service redundancy following unexpected outages,” he added. “Their insurance programs also tend to cover a wider range of incidents.” According to Microsoft, the CrowdStrike update error affected over 8.5 million Windows devices globally. The incident highlighted the interconnected nature of our global ecosystem, including cloud providers, software platforms, security services, and their clients. “It’s a stark reminder of the importance of prioritizing safe deployment and disaster recovery across the tech industry,” the company said in a blog post. McMurtrie pointed out that the outage’s widespread impact was largely due to its effect on organizations that are critical to societal infrastructure—sectors like agriculture, airlines, banking, energy, government, healthcare, manufacturing, and retail. “Insurance companies base their risk appetite on their ability to understand and price risks appropriately. This becomes increasingly challenging with emerging threats,” he said. “However, I anticipate that insurers will respond by clarifying policy language, refining risk selection criteria, and possibly developing new products specifically designed for this evolving exposure.”

States with the Highest Workers’ Comp Rates