Trends in workers' compensation insurance for 2025

December 3, 2024 4:40 PM

A person in a hi vis vest using a hammer.

Digital Insurance reached out to insurance professionals for comments related to trends in workers' compensation insurance.

Responses have been lightly edited for clarity.

Experts suggest there may be a rise in claims next year and technology including artificial intelligence and wearable technology will continue to play a large role.

Andy Logani

chief digital officer at EXL

Workers' compensation policies are set to evolve, adapting to new technologies and emerging work models and a focus on prioritizing employee well-being. The introduction of advanced technologies like Gen AI and LLMs is poised to transform the workers' compensation landscape by enhancing efficiency, personalization, and safety across key areas, including claims management, risk assessment, and workplace safety.

The remote work shift

The rise of remote work, accelerated by the pandemic, has changed how businesses operate. Employers must now address health and safety risks associated with home office setups, including ergonomic issues and slip-and-fall hazards. Monitoring remote environments for potential injuries is a challenge, making it essential for businesses to establish safe home office standards, clear work hours, and remote work policies. Regular check-ins are also crucial to prevent costly workers' compensation claims stemming from these risks.

Integration of advanced analytics and LLMs

Use of advanced analytics and LLM's can help insurers analyze vast amounts of data, spotting patterns and trends that help forecast costly or complex claims. This allows for early intervention, reducing claim costs and ensuring employees receive timely, appropriate care. Gen AI holds potential in these areas

Automated claims triage and processing: LLMs will streamline claims handling by analyzing unstructured data, extracting key information, and categorizing claims efficiently. This reduces processing times, enhances accuracy, and improves consistency across the board.
Personalized return-to-work plans: Gen AI will create highly personalized return-to-work plans by analyzing an injured worker's medical history, job role, and recovery data. This approach will speed up recovery times, reduce claim durations, and lower overall costs for insurers.
Chatbots for claims communication: LLM-powered chatbots will handle routine inquiries, provide real-time status updates, and guide claimants through the claims process. This improves customer satisfaction while freeing up human adjusters to focus on complex cases.
Safety training content creation: Gen AI will generate customized safety training materials and simulated scenarios based on industry-specific risks, leading to more engaging and effective safety programs, ultimately reducing workplace accidents.
Policy analysis and optimization: LLMs will analyze historical claims data, policy documents, and industry trends to suggest optimized coverage options and refine policy language. This will help insurers offer clearer, more comprehensive policies that better meet client needs.

Ian Drysdale

CEO of One Inc

The combined ratio of the workers' compensation sector for 2023 was 86% (Willis Towers Watson, 2024). Similar performance is anticipated for 2025. However, there is potential for cost increases due to wage inflation and changes in experience modification ratings (Risk Strategies, 2024), underscoring the need for a digital payment transformation to improve efficiency and reduce costs.

As insurers seek to stay compliant with changing workers' compensation regulations, such as South Carolina's decision requiring digital payments to be the default method, partnering with an insurance-centric payments provider who offers a unified platform and advanced features like pre-select will become paramount.

Nesha Courtney

manager - advocacy, biopsychosocial, disability and return to work services, Broadspire

Wearable technology will have a growing impact on identifying and mitigating workplace injury risks.

Technology will play an increasingly pivotal role in improving occupational safety and well-being. Specifically, wearable technology—including smart helmets, sensors, and monitors—will become more prevalent, providing real-time data on individuals' health metrics and environmental conditions. This influx of data will empower employers to leverage predictive analytics, identifying patterns and gaining insights into potential hazards before injuries occur.

Coleman Johnson

SVP, chief underwriting officer at The Mutual Group

The WC market is stable for insureds, especially accounts with favorable loss experience and sound risk management practices. NCCI's 2023 combined ratio was 86%, a 2-point increase over the prior year, but still a very profitable result. With most carriers making money on the WC portfolios, I think we'll see another year of slight decreases, but the pressure is building for rates to flatten out in the near future.

Andy Lea

CIO at Embroker

The workers' compensation landscape is undergoing significant transformation driven by multiple factors. Inflationary pressures combined with rising medical costs are expected to push premium increases into the 3-7% range. The continued evolution of remote work is fundamentally changing claims patterns and risk assessment methods, forcing insurers to adapt their underwriting approaches. A major shift is occurring in claims management, with telemedicine and virtual care platforms becoming mainstream solutions rather than alternatives. Mental health coverage is emerging as a critical component of workers' comp policies, reflecting broader awareness of psychological workplace injuries and stress-related claims. The gig economy and hybrid work arrangements present unique challenges, as traditional workers' comp models struggle to adapt to these new employment paradigms.

Jim Kremer

EY Americas claims transformation leader

In 2025, we can expect to see claims frequency increasing with more people entering the workforce. That's going to put pressure on profitability at the front end, while the potential for increased litigation could create challenges at the back end. In a softening market, a focus on effective claims practices is going to be critically important. How do you investigate and manage claims? Do you have an operating model that encourages excellence? How do you hold people accountable? Are you investing in training? Are you leveraging emerging technologies like generative AI to free up your frontline, customer-facing staff to drive better outcomes?

For every insurance carrier, the biggest expense spend is labor, and the largest portion of their labor spend is in claims. If you're going to underwrite more business as the workforce increases, then you're going to need more claims adjusters. Workers' comp is very labor intensive throughout the life of the claim, and there's currently a talent shortage. Gen AI can enhance the employee experience by taking mundane tasks off the desks of adjusters and allowing them to focus on solving problems and delivering excellent service. Helping people is much more rewarding than checking off boxes in a system. But very few carriers are fully active with these capabilities. Those that do integrate technology to improve the employee experience and elevate customer service will quickly separate themselves from the rest of the pack.

Steven Kauderer

principal at EY Parthenon, Ernst & Young LLP

Two trends are expected to drive workers' compensation in 2025: a projected uptick in employment and increased competition among carriers. With more workers in the workforce, claims frequency should rise. At the same time, the profitability of workers' comp in recent years is likely to draw new entrants to the market and push existing companies to expand their presence. As competition heats up, prices could potentially drop, impacting profitability. Given these projections for 2025, underwriters should consider following these best practices to mitigate, prevent and manage losses.

Focus on geography and industry: Leading workers' compensation insurance companies are deeply knowledgeable about specific US states and industries, often focusing on particular industry sectors and regional markets. Regulations vary by state, including eligibility requirements, benefits, and claim procedures, and staying on top of evolving legal and regulatory changes is challenging. Industry-specific exposures also differ significantly. For example, underwriting for the entertainment industry in Los Angeles presents different risks and exposures compared to a small manufacturing business in the Southeast. Leveraging insights from one's book of business will lead to more granular front-end pricing decisions.

Facilitate return to work: Classic mitigation strategies include directing workers to the appropriate medical professionals, ensuring they receive the right treatment, and facilitating their quick return to work. This last point is critical. A forward-thinking underwriter collaborates with the chief human resource officer and senior leaders to develop backup roles for each employee category. Any form of light duty can improve the economics for the insurance company, creating a win-win situation—the insured benefits from having safe, productive employees, and the worker feels valued. Finally, adopting IoT and sensors to prevent injuries will be increasingly important, enabling carriers to improve average risk and reduce loss, thus bending the loss curve. By aligning the interests of the carriers (fewer losses) with those insureds (safer workplaces and fewer injuries) will drive higher renewal retention and greater stickiness.

In a year where the industry can expect more claims and less profitability, the most successful workers' compensation insurance companies will be those that demonstrate strong underwriting discipline, adhere to their focus areas, and effectively support an employee's return to work, and loss prevention.

Dale Hoppe

VP, workers' compensation E&S/S programs at Nationwide

Our prediction for 2025 and beyond is one centered around more active insurance products that are intended to help prevent injury before it happens. We will continue seeing WC programs focus efforts around preventing/detecting workplace hazards and protecting workers from injury through products centered around insurtech and innovation.

Preventing/detecting workplace hazards: leveraging AI to analyze video footage of four wall risks to identify workplace hazards, areas of poor ergonomics and other inherent perils that could lead to a workplace incident or injury if not addressed or corrected. A company that Nationwide partners with that is at the forefront of this technology is CompScience.
Protecting workers from injury: advancing wearable technology to aid frontline workers in ergonomic lifting, twisting, and bending. The technology gives the worker a reminder when poor body mechanics occur; thus, creating a constant reminder to the worker to perform work safely. Sprain/strain injuries are still one of the most prevalent WC losses and highest injury costs. Kinetic is a leading company in the wearables industry that Nationwide partners with.

Phillip Maddox

sr. consultant, workers' compensation risk management at Nationwide

In the worker safety and workers' compensation space, the advancements in the use of computer vision and AI technology have been game changers in the collection and analysis of data to better inform users on the actual risks present in the workplace. Wearables, bots, drones, and camera systems can help identify postures, temperature, at-risk work practices, PPE usage, and more with greater efficiency and speed than ever. The key to successfully utilizing these technologies in 2025 and beyond will be combining them with expertise and a commitment to translating this knowledge into practical solutions that mitigate risks. This is where experienced carriers and agency partners will continue to bring significant value to the workplace.